India Inc expects policy rate cut post GDP number release

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New Delhi, January 7
Terming the advance estimates of gross domestic product (GDP) 2016-17 at constant price is in line with expectations of different institutions pegged at 7.1 percent as compared to 7.6 percent in provisional estimates for 2015-16, Indian Inc said that further downward risks to the growth still prevail in the form of continuous fall in fixed investments and index of industrial production, unsolved problem of bank’s NPA in India, political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility. “Rising crude oil prices will have its adverse effects on current account deficit and exchange rate and unpredictability in the Indian economy due to recent policy stances and announcements on demonetisation and other related factors could further adversely impact the GDP,” said ASSOCHAM. “Though some upward movement was gained in few sectors due to the modest recovery in advanced economies in the later period of 2016 led by USA but it has fallen short to have its full positive impact on India since optimism followed by funds for investments started to move out from India to the US following the results of presidential elections and consequently rupee weakened significantly which made exports from India costly; further adding pressure on declining exports from India,” added the chamber. “While prospects for growth exist in rural demand due to expansion in acreage under rabi, slight upward movement in urban demand due to pay commission awards, and contained inflation by supply measures; policymakers should take doable steps to revive fixed investments and production of capital goods which are falling continuously since the growth which is being supported by consumption demand does not have sustainable impact,” it said.
The chamber further stated that when private investment are lacking, public investments should be increased in roads, railways, inland waterways and government should take policy initiatives to unclog the cash flows in large projects and to boost construction.
It also suggested that government should work towards maintaining the domestic market a continuous driving force to provide a steady flow of new business and investment. Though the Chamber supports the initiative of currency ban but states that it should have implemented well and measures such as lowering of tax rates in upcoming budget along with widening of tax base, further reduction in bank lending rates, implementation of GST. , policy reforms in infrastructure and core sectors, resolution to the problem of cash-crunch for transacting business and maintaining the stability in the Indian economy by government and regulators such as RBI, SEBI and others hold the key for growth.
Another leading industry body FICCI said, “The advance estimates for Gross Domestic Product (GDP) as well as Gross Value Added (GVA) growth for FY17 released today are in line with the estimates of the RBI, pointing towards slow growth.”
“The data on gross fixed capital formation corroborates the weakness in investment activity. We hope that the recent cut in lending rates by banks and the impetus given to the housing sector will help in boosting the demand and investment scenario. We hope that this rate cut cycle will be carried forward to further accelerate the pace of growth”, said Pankaj Patel, President, FICCI.
“We also look forward to reduction in tax rates and further policy push to support demand and investment in the upcoming Union Budget. An economy with wider tax base and robust growth will help fund the capital and social expenditure for the larger benefit of the economy”, he added.
The Confederation of Indian Industry (CII) also stated that the GDP print, as indicated in the Advance Estimates, is expected to show a moderation in growth to 7.1 per cent in 2016-17 as compared to 7.6 per cent achieved last year which is in line with expectations. Even so, this is the third successive year that the economy has clocked above 7 per cent growth indicating that the underlying fundamentals are strong.
No doubt, the demonetisation drive is anticipated to result in a downward bias to GDP growth in the next one or two quarters, but this is likely to be a blip in the growth momentum as demand has only been deferred and will re-emerge once the situation becomes normal, said Chandrajit Banerjee, Director General, CII.
As per the Advance Estimates, while there is an upsurge in the growth of public investment, this has yet to crowd in private investment which continues to be sluggish thereby stymying growth.
In such a scenario, CII looks forward to a growth-oriented Budget which would unleash a new wave of investments and set the pace for economic growth of eight per cent above in the near future.

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