India's economy is expected to rebound in 2020 on the back of measures taken by the government and the RBI coupled with easing of global trade tensions, industry body CII said on Sunday. The chamber also suggested a flexible fiscal policy that will set a central government's target for the deficit in the range of around 0.5 to 0.75 percent, and said it is likely to have a significant multiplier effect on the economy.
It said that as we are set to enter the new year, there are nascent signs that the economy is on a better footing than what it was in the year gone by. "With the proactive measures taken by the government and the Reserve Bank of India (RBI), industry believes that the slowdown will be overcome, and a gradual recovery will soon be in place."
"Nascent signs of recovery are noted in the form of improved PMIs (Purchasing Managers' Index) of manufacturing and services, jump in passenger air traffic, sharp moderation in the decline in sales of passenger cars, among others," said CII President Vikram Kirloskar.
He added that though the economy may continue to see a subdued GDP print in the third quarter as well, the quarters thereafter are likely to see a rebound.
According to the Confederation of Indian Industry (CII), with the initial difficulties associated with the goods and services tax (GST) and the Insolvency and Bankruptcy Code (IBC) getting gradually ironed out, the industry is hopeful of substantial benefits for the economy.
It said that while 2019 will be remembered as one where the systemic clean-up of the financial sector picked up pace, which might have resulted in "short-term pain", this tidying up will have extensive positive ramifications for the economy in the short-to-medium term.
"On balance, all these factors will have a significant bearing on growth in the next fiscal. Add to this, the easing of global trade tensions along with lagged impact of monetary easing coupled with improved transmission, and we are in for a gradual recovery getting firmly entrenched by the next fiscal," Kirloskar said.
CII believes that with the sharp moderation in growth, the time has come to adopt an expansionary fiscal policy.
"Just like our medium-term inflation target range, we can have a flexible fiscal policy target which will set a central target for the fiscal deficit with a range of around 0.5 to 0.75 percent. The additional availability of funds may be spent on key infrastructure projects which can be implemented quickly. This is likely to have a significant multiplier effect on the economy," said CII President-Designate Uday Kotak.
In the subsequent years, there can be a glide path to converge to the Fiscal Responsibility and Budget Management trajectory over a 2-3-year time frame, he added.
Besides, the chamber suggested that in order to increase the tax base and ensure higher compliance, it is necessary to simplify and reduce the number of GST rates and increase its coverage.
Once it is converged, the practice of reviewing rates at every meeting of the GST Council must be discontinued. Similarly, a rational structure of customs duty needs to be in place. The principle of higher customs duty on final products with lower duty on intermediate goods and the lowest on raw materials needs to be followed, without exception, said CII.