labels: Economy - general
CII seeks active government role in reviving business confidence news
27 October 2008

Mumbai: The Confederation of Indian Industry has called for active policy support from the government to revive business confidence shaken by the global market meltdown.

A general lack of confidence among business is putting the future of the economy itself at stake, a statement quoted CII director general Chandrajit Banerjee as saying.

''The fundamentals of the economy are intact, but apprehension that it will be affected sooner than later by the global financial turmoil is impacting the sentiment and focus on continuation of high growth is the only answer to the present crisis," he added.

A stock market meltdown and the high interest rate regime has forced corporates defer investment plans. Most companies are delaying plans to raise funds from the market, either through issue of equity or through the debt route.

For many, the borrowing costs add to the high input costs, making business an altogether difficult proposition and are in no mood to borrow at current rates.

Most companies are delaying debt sales on expectations of further rate cuts in coming months which could reduce borrowing costs further.

 Commenting on the current situation in the economy, Banerjee said the basic problems with the economy are: lack of enough liquidity; high cost of capital; non-availability of credit;  instability in foreign exchange markets and; low levels of confidence.

All these five are interlinked. We are already seeing the impact of these on the manufacturing sector and soon we are likely to see its impact on other sectors too, particularly in the service sector, he added.
 
While the government and the Reserve Bank of India have brought taken a number of measures to infuse greater liquidity into the system, including reductions in key lending rates and bolstering the rupee value, these are yet to influence corporate growth plans.

The need at the mement is to instill confidence in the economic system, CII statement said. For this, the CII suggested a broad range of measure, including liquidity injection, foreign exchange management,credit flow and incentives for growth along with nationwide campaign aimed at confidence building.
 
CII has sought an immediate reduction in interest rates, increased provisioning of liquidity to mutual funds and NBFCs and government guarantee for bank deposits for a two-year period, to maintain depositor confidence in the banking sector.
 
In order to bolster rupee value without losing liquidity, CII has suggested focused exchange rate management, relaxation of FDI norms to attract foreign capital, utilisation of foreign exchange reserves for meeting critical foreign currency needs and removal of the cap on NRE and FCNR(B) deposits.
 
Ther industry body has also suggested a special corpus for lending to SMEs; in addition to speedy release of government funds for various projects to ensure timely implementation and generation of economic activity; and fast-tracking of all infrastructure projects to spur investments and growth through inter-sectoral linkages.
 
Even while the fundamentals of the economy are strong at the present moment, the mood in industry and markets have swung downwards owing to a huge deficiency in confidence. Therefore, CII has particularly stressed on the need for building confidence in the system, through a joint effort of the government, the RBI and industry.  


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CII seeks active government role in reviving business confidence