Prime Minister Narendra Modi is set to reach out to industry heads and CEOs in Mumbai on Tuesday, at a time when macro-economic headwinds with rising oil prices and capital outflows and private investment are yet to pick up after a prolonged slowdown.
The Prime Minister will host a roundtable conference of industrialists and CEOs at Raj Bhavan when he visits the commercial capital on June 26 to attend the third annual meeting of the multilateral lender — Asian Infrastructure Investment Bank or AIIB, sources said. The meeting also comes in the backdrop of a buzz among a section of CEOs, besides bankers, against the recent arrest of top bankers and the state of PSU banks.
The latest RBI move to increase the key policy rate — Repo rate — by 25 basis points has not gone down well with Indian industry. The RBI decision will increase the cost of doing business and impact capital expenditure by India Inc, Confederation of Indian Industry (CII) had warned. It also listed availability of credit as a worry with 11 banks under the prompt corrective action (PCA) framework of the RBI.
What is worrying many, especially in the government, is the slowdown in investment, especially private investment. From a peak of 35.6 per cent in 2007, gross fixed capital formation to GDP – a measure of investment activity slid to 26.4 per cent in 2017 while domestic savings, too, has fallen below 30 per cent compared to a high of 38.3 per cent in 2007. Earlier this year, the Chief Economic Advisor, Arvind Subramanian, had said India’s investment and savings slowdown was unusual and it has gone on for far too long.
Official sources said Modi will push the business leaders to take risks and invest more in a bid to push his ‘New India 2022’ initiative. After arriving in Mumbai, the PM will first address the third annual meeting of the Asian Infrastructure Investment Bank (AIIB), which is also themed on mobilising funds for infrastructure at the National Centre of Performing Arts in Mumbai.
Industry circles say the only major reform measure that the government has undertaken is the implementation of Goods and Services Tax (GST). Demonetisation of Rs 500 and Rs 1000 notes in November 2016 gave a big blow to the industry, especially small and medium enterprises which have not fully recovered from the shock. The Modi government tried to revamp the land acquisition laws but backed out. On the other hand, the Insolvency and Bankruptcy Code (IBC) implemented by the government to tackle the ballooning non-performing assets (NPAs) and the Reserve Bank’s decision to scrap all loan restructuring schemes have created uneasiness and resentment among industrialists. “The current economic climate is expected to come up for discussion between the PM and industry leaders,” said an investment banker.
The latest RBI move to increase key policy rate – Repo rate – by 25 basis points has not gone down well with the industry. The RBI decision will increase the cost of doing business and impact capital expenditure by India Inc, Confederation of Indian Industry (CII) had warned. It also listed availability of credit as a worry with 11 banks under the prompt corrective action (PCA) framework of the RBI.
Asked about the difference between 2014, when the Narendra Modi regime kicked-off with a clear majority, and now, at a CII media conference recently, Kotak Mahindra Vice Chairman and MD Uday Kotak said the “macros” were working for the benefit of the country like lower oil prices, but the “micros” within the country were tough earlier. “The situation has reversed now, where the macros are getting tougher through surge in oil prices, rising protectionist tendencies in the world and hardening interest rates globally but the micros are better,” Kotak had said.
The rising crude prices, which have led to analysts cutting their growth forecasts marginally, and protectionism have been listed as areas of concern for the economy by industry chambers. Current account deficit (CAD) has widened further and capital market witnessed outflows in the current financial year. The introduction of GST and demonetisation by the government led to the loss of 1.5 million jobs, but industry chambers say there has been high job creation in the informal sector which is not being counted.
The CII has forecast 7.3-7.7 per cent growth in 2018-19 and stated that it expects the growth to strengthen further in the few years to come. “This is in spite of some challenges in the global economy, including hardening of interest rate regimes, volatility in oil prices, etc,” said Rakesh Bharti Mittal, President, CII, while addressing a media conference in Mumbai recently.