Rate cycle peaked but easy money still far off: ASSOCHAM Assessment
T(Monday, January 27, 2014) he interest rate hike cycle has certainly peaked while the Reserve Bank of India (RBI) may still be feeling constrained to go in for an easy monetary policy tomorrow, an ASSOCHAM assessment paper has noted. It said while the business and industry want the central bank to go in for bold measures and announce major cuts in the policy rates, the expectations may not be met by the RBI, adds the ASSOCHAM paper. “There is a pressure building again on the Indian Rupee as emerging markets’ currencies weaken against the USD. For us in India, the currency depreciation could mean more of imported inflation. This development along with further tapering plans of the US Federal Reserve in its bond buying stimulus programme is sure to weigh on the Governor Dr Raghuram Rajan,” said Mr Rana Kapoor, President ASSOCHAM. The ASSOCHAM assessment was based more on different factors and a holistic picture and not merely the industry expectations and wish list, even though high interest rates have really been hurting growth. “While there is a great case for drop in the policy interest rates, the industry concerns may be partially addressed and this could be done by other means rather than change in the interest rates….” said Mr. Kapoor. One of the biggest concerns before the RBI and the industry today is the rising stress on bank assets in a host of sectors which are being affected severely by the economic downturn, adds the paper. “Addressing the issue of Non Performing Assets (NPAs) and finding a solution which takes a practical view of the ground situation is a key. A lot of such assets which are under stress today can be revived back to health if a pragmatic view is taken by all the stakeholders- RBI, Government, banks and the borrowers,” the paper pointed out. In so far as the pure play of interest rates is concerned, there are a number of sectors like consumer durables, automobiles, real estate and MSMEs which would like RBI to at least drop
the policy rate moderately, points out the ASSOCHAM paper. After all, business confidence has to be restored both by the investment as well as demand generation. “Which will lead and what will follow can play out, but let there be reduction in cost of production of which interest rate is a major component”, the ASSOCHAM paper said. The ASSOCHAM assessment paper was based on the feedback not only from the industry but also from economists, consumers, borrowers and bankers. One of the major issues resurfacing is the depreciation in rupee value. “Since we are a net import dependent economy, the currency dip immediately hits the price line….. Ironically, the immediate impact is felt by the oil companies which will then pass the extra cost to the consumers…. pushing the economy again into a bad cycle”, added Mr. Kapoor. The RBI, has a difficult task ahead, “we only expect the Governor to find a pragmatic way out,” adds ASSOCHAM chief.
Over 11% decline registered in people engaged in agriculture and allied activities during last decade: ASSOCHAM Study
The number of people dependent upon agriculture and allied activities for their livelihood has come down from over 60 per cent to 49 per cent during the last decade i.e. between 1999-2000 and 2011-12, signaling a prominent shift in the rural job profile with significant reduction in proportion of workers engaged in agriculture and an increase in secondary and tertiary sectors, self-employment and in regular work, according to a recently concluded ASSOCHAM study. “The number of people employed in secondary and tertiary sectors have grown significantly from about 16 per cent and 23.5 per cent in 1999-00 to about 24 per cent and 27 per cent respectively as of 2011-12,” according to a study titled ‘Structural Shift in Rural Employment’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM). “The rural employment pattern has undergone massive change and these changes are likely to continue in future as they are driven by high level of public and private investments in rural areas and also trickle down impact of investments in agriculture itself,” said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the findings of the chamber’s study. “The shift away from dependence on farm related jobs towards acquiring other skills and engaging in selfemployment, trade and services should be encouraged as it would help intensify financial inclusion in rural areas and contribute to national growth,” said Mr Rawat. The number of people employed in agriculture sector have declined from about 261 million in 2009-10 to 231 million as of 2011-12, highlighted the ASSOCHAM study. While the number of those employed in manufacturing sector have increased from about 55 million in 2009-10 to about 66 million in 2011-12, the number of people engaged in mining has increased by one million, while of those employed in construction sector have almost doubled and those in services sector have also increased by about 17 million, it added. Improved rural incomes together with high retention of girls in middle and higher schools, larger percentage of remittances from men folk working in urban and semi-urban areas signaling an overall improvement in rural socioeconomic system has led to a fall in number of working rural women in India which dropped from over 126 million in 2004-05 to about 106 million in 2009-10. In its study, ASSOCHAM has suggested the government to continue to emphasize employment entitlement scheme under MGNREG and push for greater mechanization of farm operations and it must also encourage shifting of farm labour to other vocations including self-employment and training to acquire semi-skilled or skilled qualifications. ASSOCHAM has also suggested the government to raise the levels of public investment in rural infrastructure, education and skill development.
Indo-Japan Alliance will have Multiplier Effect on Economy and Diplomacy
ASSOCHAM strongly advocates fostering the emerging Indo-Japan alliance which can play a pivotal role in boosting the country’s growth prospects and also ensuring regional peace. ASSOCHAM welcomes Prime Minister Abe and hopes that the strong ties between the two countries will bring in better technology, provide a boost to manufacturing and create better synergies to build infrastructure. Bilateral trade between India and Japan is worth USD 18.5 billion currently and is expected to reach US$25 billion by 2014. ASSOCHAM suggests the following measures for sustained business development with Japan:
Enhancing Trade: Comprehensive Economic Partnership Agreement (CEPA) will promote trade by removing tariff on 94% of goods over 10 years. The initiative has reduced duties on 17.41% of all tariff lines in important sectors
such as cement, energy fuel, fabric, fibers and machinery etc., to zero duty, thereby pushing growth. The Chamber strongly recommends providing focused policy and infrastructure interventions facilitating incremental growth across these sectors Infrastructure
Investments: India’s infrastructure is ranked 84th amongst 144 countries in the Global Competitiveness Report for 2012-13, making it imperative for the country to drastically improve on this front. Infrastructure development in India requires an investment of INR 40.9 trillion during the 12th Plan period. Infrastructure financing from Japan for the Western Freight Corridor, the Delhi-Mumbai Industrial Corridor and the Bangalore Metro Rail Project will enhance economic growth in the country as well as offer an interest income of over 8% to Japanese investment
Human Capital: India’s working age population (15-64 years) is now 63.4% of the total population. On the other hand, Japan’s ageing population requires business from overseas. ASSOCHAM suggests that Japan should leverage India’s demographic dividend since it offers a platform for low cost production and skilled labor. Until October 2012, 1,576 Japanese companies have invested in India, thereby generating employment opportunities in India as well as providing new markets for Japanese companies Sustained Economic Growth: Services are an integral part of the global value chain, contributing 67.5% to the world GDP. ASSOCHAM emphasizes that the rapidly growing services sector in India can be leveraged by Japan’s heavy-manufacturing base to shore up ties between the two economies. Sectoral trends between 2000 and 2013 indicate that services attracted 19.05% of total Japanese FDI in India ASSOCHAM emphasizes the need for a suitable policy impetus to promote Japanese investments and also encourage goods and services exports from India to Japan. Japan’s technology expertise and India’s growing youth population can propel both economies to a higher growth trajectory.
ABOUT ASSOCHAM
The Associated Chambers of Commerce and Industry of India (ASSOCHAM), India’s premier apex chamber covers a membership of over 4 lakh companies and professionals across the country. It was established in 1920 by promoter chambers, representing all regions of India.
Promoter Chambers
As an apex industry body, ASSOCHAM represents the interests of industry and trade, interfaces with Government on policy issues and interacts with counterpart international organizations to promote bilateral economic issues. ASSOCHAM is represented on all national and local bodies and is, thus, able to pro-actively convey industry viewpoints, as also communicate and debate issues relating to publicprivate partnerships for economic development.
ASSOCHAM members represent the following sectors:
Trade (National and International) Industry (Domestic and International) Professionals (e.g. CAs, lawyers, consultants) Trade and Industry-Associations and other Chambers of Commerce.
The Associated Chambers of Commerce and Industry of India
ASSOCHAM Corporate Office, 5, Sardar Patel Marg, Chanakyapuri, New Delhi – 110021 Tel: 46550555 (Hunting Line) Fax: 01123017008/9 E-mail: assocham@nic.in