Short- and long-term measures needed to spur economic growth: India Inc

The sharp fall in gross domestic product (GDP) growth in the April-June quarter has disappointed Corporate India, but it is not a surprise. Companies across consumer packaged goods, automobiles, capital goods, and steel have seen overall consumption slow down to an unprecedented level since the last three quarters.

Top officials at various companies said they were worried about the steady decline in GDP growth quarter-on-quarter for the past one year, from 8 per cent in the June 2018 quarter to 5 per cent in the June 2019 quarter. A combination of short- and long-term measures to kick-start growth and put the economy back on track is the need of the hour, they said.

“The worrying sign about GDP numbers is the trend I see over the past few quarters. I hope it does not slide further because it will not augur well for the economy,” said Harsh Mariwala, chairman, Marico Industries.

Vikram Kirloskar, president of Confederation of Indian Industry (CII), agreed. “The growth rate does reinforce the concerns that industry has about entering a phase of slowdown. While not at variance with global growth trends, the CII hopes that India should buck the trend with appropriate interventions from the government,” said Kirloskar. 

Anand Mahindra, chairman, Mahindra Group, took to Twitter on Friday to express his disappointment. “Well, this certainly ruined my Friday and will dampen the weekend. A lot of work needs to be done. But I remain steadfastly optimistic,” he tweeted. 

Much more alarmed than Mahindra was Kiran Mazumdar-Shaw, chair and managing director (MD) of Biocon, who, speaking at an event in Bengaluru, warned that the 5 per cent figure suggested an ‘economic emergency’. 

Besides global turmoil, trade wars and the non-banking financial company issue, which have led to a crisis of confidence, the impact of demonetisation has hit consumption in rural areas. All this has been compounded by the implementation of the goods and services tax (GST) which, though much needed, as Mariwala pointed out, badly hit small businesses.

According to fast-moving consumer goods research firm Nielsen, for Q2 of the calendar year 2019, rural growth has been at 10.3 per cent, compared to Q2 (April-June) of calendar year 2018’s growth of 20.3. In short, a deceleration of 9.7 per cent. Auto sales, an indicator of an economy’s health, have seen a steady decline for 12 straight months and there are enough indications that sales will continue to crawl along in the slow lane in the months ahead.  In the quarter that ended in June, car sales (all segments) fell 23.1 per cent over a year ago, the lowest in two decades. The sharp fall dragged down the overall manufacturing GDP to 15.3 per cent, from 16.2 per cent a year ago. 

Quoting marketing guru Jack Trout, Rajiv Bajaj, MD at Bajaj Auto, said: “You have to sell yourself out of trouble, if you can’t save yourself out of trouble.” In times such as these, smartly adapting marketing strategies by repositioning products and prices in a manner that presents a far more compelling proposition is the best option, said Bajaj.

He suggested that, in this context, the single-most important intervention that the government could make was a reduction in GST on cars from the current 28 per cent to 18 per cent which, moreover, would be best carried out in conjunction with Bharat Stage VI implementation.  The collapse of private consumption demand from 10.6 per cent in fourth quarter of 2017-18 to 3.1 per cent in first quarter of 2019-20 is real cause for concern, said Devendra Pant, chief economist, India Ratings and Research (Ind-Ra), in a note published on Friday. “Ind-Ra believes both structural and cyclical issues are plaguing the Indian economy and in order to bring it back to a respectable growth path, both short-term and long-term measures are required,” wrote Pant.

India Inc wants the transmission of central bank rate cuts to the consumer to be more effective. “While one can always seek a deeper cut from the Reserve Bank of India (RBI), the transmission of rates is key and if risk aversion continues in the market, then money will not flow through the economy,” said T V Narendran, CEO and MD at Tata Steel. He said that the revival and acceleration of infrastructure expenditure is key to recovery. If possible, he suggested that the surpluses transferred from the RBI could be used for this purpose. This, in turn, would have a multiplier effect. 

“At this point, the government should increase spending without worrying too much about the fiscal deficit,” said Sajjan Jindal, chairman and MD of the JSW Group. “Providing additional investment allowance to the industry to increase its spend will help in reviving growth.”  

For Mariwala, it’s clear that, from a long-term perspective, the government should raise more money through higher divestment. “My question is why merge banks? Instead, why doesn’t the government get out of some of the banks? The capital raised via disinvestment could help the government undertake key welfare measures, provide sops to taxpayers to spur demand and consumption, and get companies to invest more so that the job scenario improves,” said Mariwala. 

The time factor was something that M S Unnikrishnan, MD and CEO at Thermax, was worried about. “Even if corrections are made, new orders will take longer. The correction in delay in execution for existing orders will depend on improving the liquidity for the banking sector.”

With inputs from Shally Seth Mohile, Viveat Susan Pinto, Ishita Ayan Dutt, Amritha Pillay, and Aneesh Phadnis