As the government chalks out plan to bring the economy back on track, Confederation of Indian Industries (CII) has recommended several measures, including reduction in cost of transportation and logistics, privatisation of discoms, availability of long-term credits, ease of doing business, simplification of taxation and labour market reforms.
The apex industry body has suggested actions to be taken in the short and medium-term to overcome the deep distress in the economy. This includes not only immediate restructuring requirements to support the economy from the damages inflicted by coronavirus but also prepare for a more competitive economic landscape over the next decade.
"Overall, a combined programme of short-term spending and medium-term reforms are necessary for a sustained economic recovery. Such a plan will revive India's prospects and help narrow future fiscal deficits," CII said in its latest report 'A plan for economic recovery'.
While the short-term stimulus is urgently required to repair the economic damage, it may not be adequate to prepare the economy for a sustained recovery. A medium term plan, which includes structural reforms for competitiveness and a financing plan, is required to build a more competitive economy with better opportunities for trade and investment, the report said.
Structural reforms to mitigate coronavirus lockdown impact
According to CII, structural reforms are urgently required for reducing the cost of doing business as well as to renew confidence in the economy and support the recovery in the medium-term. This includes reduction in cost of transportation and logistics through better quality infrastructure, privatisation of state power distribution companies to recoup losses of government-owned entities and bring down commercial power tariffs.
The agency has also urged government to make available long-term funds by strengthening financial institutions, along with ease of doing business and simplified taxation structure in the form of one registration and bringing down the GST rates to at best three, including zero. The currently exempted products such as petroleum products, natural gas, alcohol, electricity should be included under the GST ambit, it said.
The CII said that labour market reforms are required to enhance labour market flexibility and provide incentives to small companies to increase their scale and employment. The Indian workforce, which constitutes 60 per cent informal employees, are mostly under lockdown. The coronavirus lockdown has forced several million casual labourers to either move to over 22,000 relief camps being run by central and state government agencies or back to their hometowns and villages. Their jobs and livelihoods are at risk as most of them neither have any formal contracts with their employer nor are covered under any kind of social security schemes of the government. Being at the bottom of the population pyramid, they are likely to have little to no savings to tide over this lockdown phase, CII said.
Roadmap for fiscal consolidation in medium term
For the medium-term, it is important to return to macro-stability, said CII. The agency said that though there is little or no likelihood of a balance of payments problem in the current situation, there may be a surge in imports as the economy recovers.
While the immediate budgetary spending should be made to save lives and protect businesses, measures should be taken to maintain financial stability in the medium term. Most importantly, financial contagion must be avoided by protecting the health of the financial institutions, it said.