The current financial year 2020-21 has seen a deep erosion in the economy with sources pegging the year to close with a contraction of 7.7% in the GDP.
However, after a steep drop in the first two quarters, the economy is seen to be recovering with positive GDP growth in the last two quarters. The manufacturing sector has shown a swift recovery from Q2 and is poised to deliver further growth provided the market is ready for it.
While the supply side has striven to recover its operations to pre-COVID levels, demand is still lagging in several sectors of the economy. The government must focus its efforts, firstly on improving demand in the domestic market.
One major step towards this objective is to reduce the GST rate for certain categories like furniture and air conditioners which are also identified as key thrust areas for investment by the government.
The inflationary pressure on commodities like metals and plastics will impact end product prices - both for the domestic and export markets. In order to improve demand, price of inputs and supply constraints should be managed within the bounds of the global markets. There should be predictability of prices and availability of inputs over the short and medium term which will in turn stabilise prices of the end products, resulting in improved consumer confidence.
The government should speedily release all outstanding payments or tax refunds owed to service providers in the form of pending bills. This includes GST refund dues. This locked up capital would flow back into the economy through increased spending by the recipients.
On the supply side, import duty on components should be reduced in order to encourage local product manufacturing. The infrastructure for local component manufacturing for furniture is not yet well developed in India. The government should formulate standards for import of finished goods and apply them effectively to prevent the import of sub-standard products into India.
In addition to the development of road and rail transport infrastructure, coastal and inland shipping should also be developed. It will reduce logistics costs and speed up supply substantially. While logistics have been given industry status, the warehousing space remains largely unorganised. The cold chain infrastructure also needs to be developed. The costs of exports from India should be benchmarked with leading ASEAN nations and corrective actions taken to make us more competitive.
Energy is a major factor of the economy. We must establish a national energy policy framework to support the development of a secure, sustainable and affordable energy system with the adoption of international best practices. There should be a greater focus on renewable energy and open access mechanism along with their cost effectiveness and payment security. The implementation of renewable purchase obligations (RPOs) of utilities is very important.
We should continue to encourage investment in India's energy sector and make the DISCOMs debt free and enable them to adopt the latest technologies. The government should adopt the direct benefit transfer approach for subsidy payments to consumers.
(The author is Executive Director & President, Godrej & Boyce Mfg. Co.)