The Indian economy could contract as much as minus 0.9% in FY21 if the COVID-19 crisis prolongs and the Union government is unable to restore economic activity, said Confederation of Indian Industry (CII) in a report released on Thursday.
The lobby group also urged the government to initiate structural reforms to revive the economy over medium to long-term.
“In the base case, GDP growth is estimated at a negligible level of 0.6% while in the optimistic scenario it is projected at 1.5%. In the downside risk scenario, where the pandemic outbreak gets prolonged, thereby restricting full restoration of economic activity for an extended period, the GDP growth for FY 2021 could possibly contract by as much as -0.9%,” the report noted.
CII has also called for major structural changes like reduction in the cost of transportation and logistics, availability of credit and reduction cost of acquiring capital, easier norms for land acquisition, simplification of indirect tax structure and reforms in labour laws to further ease the recovery process and attract more investments in the post-pandemic era.
The report said structural reforms are urgently needed for reducing the cost of business and renew confidence in the economy.
The Delhi-based lobby group also urged the government to introduce a stimulus package to deal with the immediate impact of the pandemic and provide relief to the unorganized workforce which has lost jobs due to the lockdown.
“While the short-term stimulus is urgently required to repair the economic damage, it may not be adequate to prepare the economy for a sustained recovery. A medium-term plan is required to build a more competitive economy with better opportunities for trade and investment,” the report further noted.
CII also said that a comparison with major G-20 countries shows that India’s debt level is not that high and the government has room to provide more incentives. It also mentioned that the government’s fiscal stimulus so far is small compared to many other countries.
“This still allows the government to provide a sharp but temporary stimulus that can be withdrawn once the economy is back on track. Without such a step, the budget will continue to bleed for several years, as the revenue shortfall continues. At this stage, the government must do whatever it takes to tide over the crisis,” the report further added.