Page last updated at 07:43 GMT, Friday, 22 May 2009 08:43 UK

Indian industry urges government action

By Shilpa Kannan
Reporter, India Business Report, BBC World News

Indian labourers take rest at a roadside work site in Mumbai
In India, infrastructure work provides development as well as jobs.

As the new Indian government is getting down to business, industry has huge expectations.

The first issue to be tackled will be the deepening economic crisis, which has curbed growth of this once-buoyant economy to 6% per year, its slowest rate in almost six years.

The BBC's India Business Report has spoken to industry leaders in the country to identify their top four concerns.

ECONOMIC GROWTH

Harsh Pati Singhania, Director, JK Organisation
Almost 12 million new jobs need to be created every year in India
Harsh Pati Singhania, industrialist

There has been sharp decline in demand for steel, iron and cement as residential and business construction and infrastructure development has slowed dramatically.

Hopes that consumers would bolster economic growth have also been dashed.

Harsh Pati Singhania is a fourth generation industrialist and he is worried that not enough is being done to boost growth.

"The country is not isolated, so whatever happens to the world will have an impact on India too," he says.

"The government has already taken some steps" to stimulate economic growth, he says, such as boosting liquidity by injecting money into the economy along with fiscal stimulus.

"Now that will really take time to trickle down, but basically our agenda needs to be two-fold," he says.

Mr Singhania is calling for "investment-friendly growth" and is eager for the government to boost spending further.

"If the government comes out with a scheme to spend a huge amount of money on middle income or low income housing, then we are talking about major growth and more importantly there is a real need for it," he says.

In India, government spending on infrastructure does more than merely create jobs; it also meets a basic need for development, he points out.

Mr Singhania is also keen for the government to leave money in the hands of consumers.

Shopping centre in Kolkata
Consumer spending has slowed dramatically in India.

"This can be either through tax cuts or through bringing down interest rates," he says.

"The liquidity introduced by the government has to flow from banks to consumers' hands. For individuals like you and me, there has to be cheaper credit available, for our housing loans or car loans or for our buying white goods.

Cheap and accessible credit helps boost domestic demand, thus fuelling growth, as well as preserving and creating jobs, he insists.

"Almost 12 million new jobs need to be created every year in India," he says.

"About nine million new job seekers come into the market each year, and another three million from a backlog.

"That's a large number and that can be achieved only through large spending schemes, or through growth."

AVAILABILITY OF CREDIT

Krishan Kalra, Secretary General, PHD Chamber of Commerce
India has one of the highest interest rates in the world
Krishan Kalra, secretary general of the PHD Chamber of Commerce

Lack of credit has held up several large infrastructure projects including highways, bridges and airports.

In the last couple of years, foreign investors have pumped in large amounts of money. That has almost all dried up now. Local banks too have curbed lending.

The government has announced multiple aid packages to boost the economy. Yet many have been complaining that the money has not reached them because the banks are not actually lending the cash to industry.

Also, the government now wants manufacturers to take the lead to keep the economy afloat.

This is just not possible, according to Krishan Kalra, secretary general of the PHD Chamber of Commerce, which represents 45,000 small and medium manufacturers.

"This is a typical Catch-22 situation, where the banks feel that if they lend their money to industry at this time, industry might lose the money and not be able to return it," he says.

"But unless industry gets the money, banks would lose even what they have loaned earlier," he reasons.

Mr Kalra is also concerned that in cases where the money is available, the rate of interest is just not affordable.

"India has one of the highest interest rates in the world, with credit being given at 12% or 13 % to industry," he says.

ECONOMIC REFORM

Chandrajit Banerjee, Director General, Confederation of Indian Industry
We would really wish to see a single market for agricultural produce and commodities
Chandrajit Banerjee, director general of the Confederation of Indian Industry

In their last term in office, the UPA government, led by the Congress party, struggled to carry out key economic reforms because of opposition from its Communist allies.

Crucial economic reforms were put on hold because of a lack of consensus. The insurance, banking and pension sectors had all been scheduled for reform, but the plans were not passed by the parliament.

Chandrajit Banerjee, director general of the Confederation of Indian Industry, says it is important that the government now addresses these reforms on a fast-track basis.

"The agriculture sector has been the one of the biggest drivers of growth and a substantial part of the country's GDP, but it still awaits reforms," he says.

"We would really wish to see a single market for agricultural produce and commodities.

"In order to improve productivity in agriculture, the government policy should move from providing subsidies to increasing its investment in rural infrastructure."

Tea picker near Siliguri, India
Investment in rural infrastructure is crucial to boost the economy.

Investments are also needed in rural infrastructure, such as irrigation, storage facilities, cold chains and rural roads.

After agriculture, the manufacturing sector is key for providing jobs to the large number of semi-skilled persons entering the work force every year.

"Here, there needs to be greater flexibility of labour laws," Mr Banerjee says.

"Rigid labour raises the costs of companies and affect the manufacturing sector."

Mr Banerjee is keenly waiting for the unified goods and services tax (GST) that is to be introduced on 1 April 2010.

This will be important to the unification of the Indian market.

But before that, he wants the government to come out with a detailed road map of and framework for the GST.

Lastly, he wants to see financial reforms in areas such as banking, pensions and insurance. The insurance bill would enable the government to raise the foreign direct investment limit in the insurance sector from 26% to 49%.

BUDGET DEFICIT

Dr Amit Mitra , Federation of Indian Chambers of Commerce & Industry
Take the risk of an unfortunate fiscal deficit, so that you can make it into a fortunate entity for the future through massive tax collection
Dr Amit Mitra, Federation of Indian Chambers of Commerce & Industry

The UPA government had announced a number of initiatives, such as a waiver of crop loans to farmers and various stimulus packages to boost the economy.

But these measures have increased the fiscal deficit.

So the new government, looking to boost growth and put economic reforms on fast track, will face already-stretched public finances.

Dr Amit Mitra from the Federation of Indian Chambers of Commerce & Industry (FICCI) thinks this can be an opportunity for the country.

"In India, unlike the United States or the United Kingdom, when we lower taxes, the collection significantly out-paces the reduction," he says.

"So the bright side of fiscal deficit is, if we can produce growth, which is what ought to come out of a 'Keynesian multiplier', then you will see taxes going back into the government coffers."

He also adds that the fiscal deficit poses a problem when the inflation rate can be affected.

"But India will have close to zero percent inflation soon."

An Indian chicken seller at a local market in Siliguri
Aiding farmers boosts India's fiscal deficit, says critics.

Therefore, he reasons, "the window is now when you can stimulate the economy".

"Take the risk of an unfortunate fiscal deficit, so that you can make it into a fortunate entity for the future through massive tax collection."

India is facing some of the toughest conditions since independence, with the recession deepening in the country's main export markets.

"Yet here in Delhi, the Indian industry is hoping for the best even as the new government gets set to fix the economy."



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