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25/5/2020 0 Comments

To get India’s economy back on track, key reforms vital

Chandrajit Banerjee
​Director General, CII
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Over the past few days, finance minister Nirmala Sitharaman has unveiled a slew of measures that would help the Indian economy battle and recover from the adverse impact of the coronavirus crisis. With its focus on promoting “Atma Nirbhar Bharat”, transformational and structural reforms have been introduced across several key areas, which will be instrumental in rebuilding the Indian economy and paving the way for a sustained economic revival.
  
First, radical reforms in the agricultural sector, such as the amendment of the Essential Commodities Act (ECA), contract farming, and inter-state sale of produce are long-awaited policies for transforming the way farmers sell their produce. This represents the freeing up of the agricultural market, much in the same way that industry was delicensed after 1991.

Deregulation of agricultural commodities such as cereals, edible oils, onions, pulses, etc adds to this effort and brings in stability in contractual obligations along with better price realisation for farmers.  The formulation of a Central law on agricultural marketing will help in barrier-free inter-state trade and enable farmers to sell their produce at more attractive prices. This will also encourage e-trading of agricultural produce and ensure levelling of prices for consumers across the country.

The creation of a facilitative legal framework to bring farmers in contact with food processors, aggregators, large retailers and exporters in a fair and transparent manner, and provide them with assured produce, price and quantity is another commendable step. A contract farming mechanism will guarantee better predictability of price and produce, with better signalling on the next year’s planting plans. The action of state governments will be central to the success of the agricultural package, and we believe that given its benefits as well as the current crisis situation, the states would partner in this mission.

Two, redefinition of the micro, medium and small enterprises (MSMEs) with revision of investment limits for the first time after 2006 with an additional turnover criterion results in two critical benefits. It brings in a large number of enterprises into the MSME benefits fold, and it encourages smaller enterprises to grow without anxiety about losing these benefits. Given that MSME are the chief employers and it is their growth that creates fresh job opportunities, this is indeed a strategic policy. We hope that this can be implemented at the earliest.

Three, a new Public Sector Enterprises (PSE) policy is to be announced, wherein all sectors will be open to private sector participation while PSEs will continue to play an important role in notified strategic sectors. As per Ms Sitharaman’s presentation, all PSEs in non-strategic sectors will be considered for privatisation, which is truly a game-changing reform.

A coherent PSE policy will play a catalytic role in promoting efficiency and better resource allocation by reducing wasteful administrative costs. Further, it will add to the government’s revenues. While the government might make more gains in waiting for equity markets to improve before placing PSEs on the block, it is suggested that the implementation is carried out at the earliest so that efficiency and resource use gains can be unlocked quickly.

Four, the government has taken key steps to revitalise the power sector, now suffering from huge debt overhang in state distribution companies. The facility of Rs 90,000 crores from PFC and REC would help to alleviate this. Further, it is notable that discoms’ reform has been linked to the enhancement in the states’ borrowing limits. Reforms in the power tariff policy would avert such situations in the future, and this promises to also address the issue of cross-subsidisation of power tariffs, which is adding considerably to costs for manufacturing companies.

Five, the liberalisation of the coal and mining sectors are major reforms that would boost India’s fuel production and attract greater foreign investments. Introduction of commercial mining on a revenue sharing basis in the coal sector will help to leverage India’s coal resources better and end the monopoly situation prevailing in this sector. Apart from greater availability of coal at market prices, technology and safety will also benefit in India’s mines.

This move has been accompanied strategically by the allocation of Rs 50,000 crores for coal evacuation infrastructure to encourage private sector participation. Another major reform is a seamless composite exploration-cum-mining production regime, which promises to remove the hurdle currently facing prospective investors. Joint auction of bauxite and coal will unlock huge potential in making India a leader in the global the aluminum industry as well.

Six, the foreign direct investment (FDI) limit in defence manufacturing was raised from 49 per cent to 74 per cent through the automatic route. While encouraging greater investments from global defence majors, greater infusion of technology in the sector will give a major boost to India’s defence manufacturing.

These reform measures address key pain points of the economy and will contribute towards enhancing its global competitiveness at a time when the world stands at a critical turning point.
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This article was first published in The Deccan Chronicle on May 22, 2020
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20/5/2020 0 Comments

A Prudent Combination of Stimulus and Reforms

Chandrajit Banerjee
​Director General, CII
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The announcements made by the Finance Minister for five days consecutively, added up to a prudent combination of stimulus and reforms. A well thought out package was presented aimed at addressing the short-term challenges posed due to COVID-19 induced crisis, medium term support to business and enterprises coupled with significant policy reforms which is likely to act as a catalyst for economic recovery post the lockdown period. To address the immediate distress in the short term, cash and food support is being provided through Pradhan Mantri Garib Kalyan Yojana (PMGKY) while more money is being put in the hands of people though tax concessions and EPF support to public and enterprises. Immediate regulatory relief was also provided both to individuals and enterprises to avoid defaults on account of lockdown through relaxation in tax deadlines as well as suspension of fresh activities and exclusion of COVID-19 related debt from IBC proceedings.

Agricultural reforms and initiatives were taken up very strongly by the Finance Minister, unshackling the sector from many outdated laws. Amendment of legislation such as Essential Commodities Act has been a long pending expectation of the stakeholders in the sector, as it this acts as a barrier in the process of price realisation. This together with agricultural marketing reforms and strengthening of agri-infrastructure with a fund of Rs 1 lakh crore will lead to improved agricultural output and better pricing for farmers.

Mining is of critical importance and the sector has been deprived of major investments. CII had been requesting for commercial mining of coal and liberalising the captive mining policy which were both extremely important for improving the efficiency and viability of the mining and metals sectors. Incentivising coal gasification is the right step to use the existing Coal resources while taking care of the environment to which India has global commitments. Introduction of reforms in the mining sector through seamless comprehensive exploration cum mining cum production policy will help build certainty in investment and attract global mining companies to India.

Upgradation of industrial infrastructure and ranking of states in terms of investment attractiveness, among other measures would go a long way in facilitating investors. Global investors looking to invest in India need handholding and guidance on where the best facilities are available. A portal providing information on ready to invest land in industrial estates and parks would be very useful for such guidance. A bailout of the beleaguered state power distribution companies will ensure that their accumulated debt is wiped out. Reforms in tariff policy will pave the way for a more viable power sector.

In view of the heightened stress which the MSMEs are facing due to prolonged lockdowns, we are heartened by the fact that the stimulus package included several measures to help the beleaguered sector. A significant measure which is expected to alleviate the cash flow problems being faced by the MSMEs currently, is the move to extend Rs 3 lakh crore collateral-free automatic loans with 100% government credit guarantee. Moreover, the decision of the government to reduce all pending dues to MSMEs within 45 days is a considerable positive for the cash starved entities and has been long-standing demand for industry. However, we urge the government to have a re-look at the proposed turnover thresholds in the redefinition of the MSMEs as these are deemed to be too low, hence will not encourage these entities to grow.

Other critical components of the package include those related to public health, public sector entities, defence, real estate and construction. The announcements made in April on cash transfers were further supplemented by food distribution to the people at the bottom of the pyramid who are facing distress. The allocation on MNREGA has also been increased so that migrants returning to the rural areas are able to find a livelihood. Industry is confident that the entire package as it is implemented will drive a gradual economic recovery. The announcement of a rental housing scheme for migrant workers would could lead to meaningful change in their condition in the long-term.

Many of the structural reforms have been industry asks for some time and if carried out in a time-bound manner, would have a significant impact on the economy's competitiveness, with wide-ranging implications for each of the sectors under consideration. The economy, when it recovers, will be a stronger and more competitive one. In addition, the stimulus of Rs 20 lakh crore, as it gets spent will have a multiplier impact on the economy. To the credit of the government and the policy makers, they have managed to achieve this without putting excessive burden on the government coffers with estimated deficit impact in FY 2020-21 likely to remain under Rs 3 Lakh Crore, which leaves additional room for contingency measures in the future, should the need arise.
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This article was first published in The Morning India on May 19, 2020
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15/5/2020 0 Comments

Government package to help Industry regain its Mojo

Chandrajit Banerjee
​Director General, CII
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Covid-19 has altered the entire economic paradigm like no other event. The global economic fallout is worsening by the day and countries across the world are grappling with the economic challenges. The ensuing battle against Covid-19 is expected to be a long-drawn one and its attendant economic costs will be humongous. At a time when the economy was showing incipient signs of recovery, the outbreak of the pandemic has come as a bolt from the blue. While the lockdown was necessary to save precious lives, it has had serious economic consequences. By the time the third phase of the lockdown ends, we would have lost almost two months of output.

The incoming high-frequency data that is trickling in has started to show the stress on the macros. The Purchasing Managers’ Index (PMI) slumped to a record low of 27.4 in April from 51.8 in March, driven by sharp falls in new orders, output and employment indices. Manifesting the collapse in service sector activities, PMI services index, too, plummeted to 5.4 in April, an unprecedented low since the start of the survey. Industrial output also mirrored the stress as it contracted by a large clip, 16.7%, in March. Merchandise exports contracted by a record 34.6% that month as the virus wiped out global appetite for trade coupled with disrupted supply lines. These are ominous signs for the economy and only the beginning of what we believe would be a protracted period of slowdown.

Unsurprisingly, the growth forecasts for the current fiscal have been scaled down sharply, with most expecting de-growth, even in their bestcase scenarios. Among the biggest casualties of the lockdown have been the daily-wage workers, who account for almost a third of the country’s total workers. With factories shutting shops, these workers have been rendered jobless. The International Labour Organization has forewarned that 400 million Indians, including migrant workers and dailywage earners, are at risk of being pushed deeper into poverty due to widespread joblessness. Another disturbing factor pertains to the lack of a social security net for the tens of millions of workers in the unorganised sector, which makes them vulnerable to the vagaries of a grinding halt in economic activities.

Taking cognisance of the very dire economic circumstances that we find ourselves in due to Covid-19, the announcement of the `20 lakh crore special ‘Atma Nirbhar Bharat Abhiyan’ package, which is roughly equivalent to 10% of GDP, by the prime minister was the need of the hour. Apart from providing the financial wherewithal to navigate out of the crisis, the thrust of the package is also on ensuring that India becomes self-reliant.

Rightfully, the focus of the first tranche of the package announced on May 13 was on the key sectors of MSME, employee provident fund, power distribution companies and taxation, among other major areas that are the most impacted. The six measures announced to alleviate the stress of the MSME sector, especially the provision of collateral-free automatic loans with 100% government credit guarantee and change in definition of MSMES, are expected to be a major shot-in-the-arm for the beleaguered sector. Both these measures were something that the CII has been very strongly advocating with the government for long.

The large allocation made for the guarantee will assure banks that the government will repay them in case the loans are not repaid by the borrower. As banks increase their credit, the economy could turn around and the actual default rate could come down. The guarantee will be a contingent liability for the government, not requiring any immediate spending.

It is heartening to note that the bouquet of announcements laid special emphasis on rejuvenating the infrastructure and construction sector for bringing growth back to the economy. Specifically, the `90,000 crore liquidity infusion into the power distribution companies (Discoms) is expected to help revive this critical sector, which has been accumulating huge losses, as the tariffs are not set on a commercial basis. It is hoped that the forthcoming packages to be announced in the coming days will supplement the well-calibrated and prudent measures announced in the first tranche.

These measures and the ones that will follow are expected to provide support for growth in the short term. However, in line with the necessity for implementing bold reforms that the prime minister spoke about, a medium-term plan for recovery, implementable over a period of time, too is the need of the hour. Funding public infrastructure has been a proven route of stimulus that not only generates demand for many industries but also creates jobs, especially for a large section of informal workforce. In this regard, a public works programme on the lines of the already announced National Infrastructure Pipeline should be initiated with the involvement of state governments so that implementation bottlenecks can be overcome. The suggested areas could include roads, railways, ports and industrial parks.

Finally, the pandemic should serve as a reminder that it is critical to build on our health infrastructure. At present, our healthcare spending at 1.29% of GDP remains abysmally low as compared to our peers in the BRICS and OECD countries. The government needs to urgently prioritise healthcare spending to brace itself for facing any eventuality of the present kind in the future.
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This article was first published in The New Indian Express on May 15, 2020
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14/5/2020 0 Comments

How to restart economy in a way that’s safe and sustainable

Chandrajit Banerjee
​Director General, CII
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The Narendra Modi government’s decision to impose one of the strictest lockdowns worldwide, which has now been operational for close to 50 days, has augured well to flatten the curve on casualties in India, but it is bound to have some serious implications for the economy. The jury on the debate over lives and livelihoods is still out in the open, but urgent action will now need to be taken to get the economy back to a safe and sustainable start.

With the nationwide lockdown further extended till May 17, though with considerable relaxations in the orange and green zones, industry is now trying to find its way around the new normal. This is because, despite these relaxations, it will take a while to put in place the requisite checks and balances for getting full capacity on board. Add to that, industry is also facing a major challenge with respect to the availability of workers to recommence their operations.

These sentiments were echoed by more than 100 top industry leaders in a survey conducted during the special meeting of members of the CII national council 2019-20 held recently. Most of the CEOs (around 90 per cent) predict a fall in GDP growth in 2020-21. Of this, a large proportion of the respondents (38 per cent) anticipate that the fall in growth will lie in the range of minus one to minus two per cent; while 36 per cent feel it will fall even below minus two per cent. This spells out the urgent need for a fiscal stimulus package from the government, one which will herald a sharp recovery from the current abyss.

With companies shutting shop as a result of the lockdown across the country, predictably, the corporate performance outlook for the current financial year looks bleak, according to the CII’s survey results. A major proportion of respondents (32 per cent) expect their topline to contract in a range of 15-30 per cent, closely followed by an almost similar proportion of respondents (30 per cent) who foresee a 0 to 15 per cent contraction, confirming the slowdown in the economy. Immediate measures are therefore required to give some relief to help the corporate sector recoup some of its lost ground.

It has been suggested that all industrial units, including in non-notified industrial areas and standalone units, be allowed to function in urban areas. In addition, the issues related to the availability of the workforce at factory sites also need to be streamlined and resolved with the utmost urgency to enable industries to resume operations. To alleviate their liquidity stress, we suggest that the banking system could step in by providing additional working capital limits, equivalent to the April-June wage bill of the borrowers, backed by a government guarantee, at 4-5 per cent interest.

The Covid-19 pandemic has induced a big external shock as well, with two of India’s biggest export markets – the European Union and the United States -- having seen extended period of lockdowns. This could inflict a further body blow to the companies which are already struggling with insipid demand conditions domestically. The survey results spell out the concerns of respondents, with nearly half of them (49 per cent) expecting exports to contract in the range of 0-15 per cent in the current fiscal. This will be especially detrimental to the prospects of companies that depend considerably on foreign trade. To alleviate their stress, as an immediate measure, exports should be classified under essential services so that they can operate with free movement of cargo across states. In addition, the interest subvention scheme currently available for MSME exporters could be extended immediately, apart from broadening its scope to include all exporters.

A significant majority of respondents (81 per cent) have indicated that they have faced problems in credit offtake from banks and NBFCs. To help banks tide over their risk aversion and lend to productive sectors of the economy, it is suggested that banks be assured of a government backstop either in terms of recapitalisation or a government guarantee on loans.

The other issue which the survey highlighted has been with respect to the anticipated job losses. A large proportion of respondents (39 per cent) expect a 10-20 per cent cut in jobs, closely followed by 32 per cent of the respondents who foresee a less severe 0-10 per cent decline in jobs.

For starters, it is important that labour-intensive sectors such as manufacturing and construction are accorded priority in any policy framework being worked out to fight the slowdown induced by the pandemic. This is crucial since any losses in jobs and livelihoods are likely to have dire implications on the level of poverty and hunger and reverse many of the gains made by the country in all these areas.

Given the precarious state of the economy and the impact on livelihoods, it is important the government steps in urgently with a comprehensive package that addresses the issues of MSMEs, stressed sectors, liquidity and the common man.
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This article was first published in The Asian Age and Deccan Chronicle on May 13, 2020

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13/5/2020 1 Comment

A visionary statement from PM Modi

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The Prime Minister has delivered a visionary statement that truly captures the needs of the nation at this critical hour during the Coronavirus pandemic. He has promised a package of Rs 20 lakh crores which would be delivered to stressed sections of society, farmers, workers, and MSME. We truly appreciate his emphasis on strengthening MSME which support millions of jobs as well as his emphasis on competitiveness of Indian industry. Global supply chains, agriculture and agri supply chains, and local supply chains all found mention in this very important statement from the Prime Minister. Workers in organised and unorganised sectors can both be expected to receive benefits in the coming days.

We appreciate that the Prime Minister spoke about the areas of land, labour, liquidity and simplification of laws which are the key challenges of the economy. Reforms in these four areas will truly unleash the next wave of economic growth within this crisis situation. The Prime Minister’s high emphasis on self-reliance and strengthening India’s domestic manufacturing is indeed welcome.  He has rightly identified the five pillars of the economy as quantum jump of the economy, world-class infrastructure, technology processes, demography and strong domestic demand.

CII welcomes the statement and looks forward to the policy announcements to be made over the next few days by the Finance Minister.
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12/5/2020 0 Comments

Tax tweaks can spur economic revival

- Vikram Kirloskar
President, CII

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With most economic activities in pause mode due to the Covid-19 contagion, businesses are expected to be hard-hit for at least a few quarters before operations return to normal. The humanitarian crisis is leading to huge demand disruption, which may persist and change habits overnight. The government is taking all necessary steps to ensure that the country and people of India are well prepared to face the challenges and threats posed by this pandemic. The tax regime will be one of the key systems impacted by the emergency situation, and it can also be a potent instrument for supporting economic revival.

The immediate impact was felt in terms of compliances with statutory requirements as well as in reduced ability to pay taxes. The relaxation in statutory and regulatory timelines in the taxation regime by the finance ministry was indeed a welcome relief for taxpayers. The move to reduce corporate tax rates from October last year could not have come at a better time, as it imparted confidence to businesses.

The two key issues being faced by industry in this challenging period relate to compression of fund inflows, which is combined with the necessity of continuing to pay for fixed costs. One of the key asks of industry has been that such extraordinary circumstances require unconventional measures. While companies are willing to pay the taxes due, we would request the government to consider extending the timelines for payments. All tax payments should be deferred until September 30, 2020.

All payments of tax due till then should be deemed to be paid. This will go a long way in adding extra liquidity in the hands of enterprises.

The government has made donations to the PM CARES Fund eligible under the corporate social responsibility (CSR) obligations. Medical relief contributions by industry would gain considerably by adding donations of masks, personal protection equipment, testing kits, and ventilators under the CSR-eligible expenditure. Other relief measures can also be considered for full deduction under this head.

Many companies have come forward to convert their plants into producing critical care items. This can be further incentivised with full depreciation for machinery used to manufacture such items or any equipment used for combating Covid-19.

Tax provisions could also be made for certain stressed sectors where demand needs to be revived. For example, vehicles are often purchased in March to avail of depreciation benefits, and this could be extended until June. For machinery purchases, accelerated depreciation could be provided for one year.

With the need to preserve export markets and prevent flight of buyers to other countries, it is important that export procedures be facilitative. One suggestion is to provide direct benefit transfers to all exporters as well as manufacturers of exported products, instead of issuing duty credit scrips. Input tax credit should be allowed for deposit of countervailing duty or special additional duty for regularisation of the advance authorisation/export promotion capital goods (EPCG) scheme. Also, export of alternate products should be allowed for fulfilment of export obligations.

A lot of cash is held up under goods and services tax (GST) payments. Interest rates under GST should be reduced and tax rebates can be introduced for making early GST payments in cash, which will be a win-win for both governments and industry. The accumulated input tax credit can be allowed to be utilised for payment of GST liability under reverse charge as well, which would help unlock cash. Further, all blocked electronic credit ledgers should be immediately unblocked until normalcy is restored in business operations.

There are several other inconveniences which changes in tax could address. In the medium term, simplicity of GST structure would go a long way towards easing the coming pain. There is need to converge GST rates to three slabs and also include some exempted sectors, such as fuel and alcohol, within the system. Some key sectors, such as health care, would benefit from being able to avail of input tax credit, which is currently not available to them due to non-applicability of GST.

These are extremely challenging times, and collective efforts by the government and industry would be required to bring the country back on track. It is important that Indian industry is encouraged to support the government in all possible ways to combat the Covid-19 pandemic.
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This article was first published in the Business Standard on May 09, 2020
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12/5/2020 0 Comments

Centre-state co-ordination holds the key for rejuvenation

- Chandrajit Banerjee
Director General, CII

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The economic and human impact of the coronavirus pandemic has been unprecedented. To curb the spread of the Covid-19 outbreak, India has been in a lockdown since March 25. As majority of economic activity and business operations came to a halt, job losses were evident across the country, resulting in falling incomes and loss of livelihoods.

Thus, as the government prepares for a graded exit from the lockdown, protecting the workforce and their livelihoods by curbing the rising unemployment has to be accorded utmost priority as this will play a critical role in our economic recovery.

As business activity resumes, the government and the industry need to come together to work on some key aspects, such as health safety and precautionary measures, among others, to create a conducive work environment and encourage greater employment in the economy.

Labour shortage
While business operations for some essential services such as hospitals, pharmacies and food supplies continued through the lockdown and gradually resumed in other sectors such as construction and manufacturing, all sectors continue to face considerable labour shortage.

Migrant workers residing in shelter homes or available locally near the industrial belts may be mapped and deployed to the nearest factories. This,in turn,will ensure that workers do not need to travel far from their homes and will help to restore incomes.

Such a strategy will require coordinated action from both central and state governments along with trade unions. State governments would be responsible for the mobilisation of workers along with the local district administration for facilitating movement of migrant workers, while ensuring their accommodation, commute, food and other basic needs.

As businesses are hit with declining revenues, to reduce the financial burden of organisations, the ministry of labour and employment may consider the extension of provident fund contribution date from the current 30 days to 60 days for the months of March, April and May.

While the EPFO has extended the date to May 15, 2020, it is suggested that this be further extended for a period of 30 days, given the extension of the lockdown period and the delays in resumption of revenue generating activities.

Additionally, it is recommended that the government could contribute 3.25 per cent of the employers’ and 0.75 per cent of the employees’ share of monthly ESIC contributions for the next three months, or relax the contributions, for three months. This will enable industries to sustain their business activities by maintaining cash flows.

We have also requested for the extension of the benefits under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) to more establishments, which, at present, has a very limited impact as it is only eligible for establishments employing up to 100 employees, with 90 per cent of the employees earning wages less than Rs 15,000 per month.

It is recommended that the scheme be extended for an organisation having 50-60 per cent of the workforce earning up to Rs 25,000 per month. This will expand the benefits of the scheme to others, specifically the MSMEs.

Scheme rethought
During the lockdown, the government had issued various labour advisories under the Disaster Management Act, such as prohibiting employers from any wage reduction, layoffs and retrenchment of workers etc.
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With private establishments now permitted to resume operations, it is requested that the applicability of the said Act be removed for industry while labour laws take precedence. The temporary relaxations and relief measures announced by the government should continue to be available for the employers for them to resume and sustain business operations.

A related suggestion is the further review of labour codes, in line with the government’s initiative towards greater simplification and rationalisation of various labour laws through codification, with a view to enable greater ease of doing business and encourage entrepreneurship.

To encourage workers to come back to work, it is suggested that EPFO and ESIC take up massive campaigns and draw up a communication strategy for informing workers to re-join workplaces. A circular/guideline may be issued from the ministry to direct workers to join work or otherwise be subject to action taken.

The government may also consider restarting the Pradhan Mantri RojgarPrasthan Yojana to encourage organisations to retain job offers and promote fresh employment. The scheme has dual benefits of providing social security to workers and encouraging employment by incentivising employers to hire new workers.

With only 33 per cent of the labour force allowed to work to ensure social distancing, productivity of enterprises might be adversely impacted. It is, therefore, suggested that normal working hours of employees across sectors may be increased by four hours every day. Workers would be paid in proportion to the normal wages for working overtime and workers’ consent must be taken for the same.

Recommendations related to health and workplace safety include availability of industry specific standard operating procedures on websites, redesigning entire supply chain process for preventing the spread of the virus, and ensuring availability of resources for maintaining quality of personal protective equipment (PPE)/sanitisation for MSMEs, among others.

Job retention
To allow commercial establishments in the services sector to retain maximum workforce, it is requested that the provisions of layoff under the Industrial Dispute Act be extended as a job retention measure for workers having no work. This will allow such workers to continue to be on the company payroll during the layoff period at reduced wages while getting access to statutory benefits such as ESIC and PF.

With all enterprises facing worker shortages while workers too face job losses, a combined effort alone can best arrest the ravages of the Coronavirus on the economy.
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This article was first published in The Telegraph on May 11, 2020
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10/5/2020 4 Comments

De-stressing the Indian economy - Economic Stimulus Needed Urgently

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​The world is grappling with the COVID-19 outbreak. The conundrum, however, has been safeguarding lives while ensuring economic balance. The manufacturing units, supply-value chains, MSMEs, the hospitality sector, and other critical sectors are struggling to find a strong ground to recuperate from the huge economic loss the outbreak has brought.  By the end of the third phase of the lockdown, we would have lost almost two months of industrial output, roughly equivalent to 8% of GDP a month. Therefore, the industry, especially the MSMEs, workers, and people from the lowest strata of the society are in dire need of a substantive and immediate stimulus package from the government.
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​The Confederation of Indian Industry (CII) has recommended direct cash transfers of Rs 2.0 lakh crore to the Jan Dhan accounts of the poor to help them tide over this crisis. This should be done in addition to Rs 1.7 lakh crore stimulus already announced. It should be ensured that migrant labourers receive money in their accounts so that they are encouraged to return to the workforce.
​Businesses are dealing with a cash flow crunch, and it is difficult to lend wage support to workers. To avoid job losses, enterprises need immediate support. CII has recommended a provision of Rs 2 lakh crore for additional working capital to help enterprises in meeting wage requirements and interest payments for the next three months. Banks should provide enhanced limits, equivalent to April - June wage bill of the businesses, backed by a Government guarantee, at 4-5 per cent interest, with a refinance guarantee from RBI. A similar carve-out could be provided for the April – June interest obligations of the stressed sectors. 
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MSMEs are the backbone of the Indian economy and are the worst-hit sectors. CII recommends a credit protection scheme for MSMEs, whereby 60-70% of the loan should be guaranteed by the government i.e. if the borrower defaults, the government should repay the bank up to the amount it has guaranteed, so the risk to the lender is limited. The allocation for this guarantee can be kept at Rs 2 lakh crore, though this may not entirely be utilised. MSMEs also are suffering because of the delayed payments, which are in the range of Rs 6 lakh crore. The outstanding payments should be made on an urgent basis to help MSMEs sail through the crisis.

CII has also suggested the creation of a fund or SPV with a corpus of Rs 1.4-1.6 lakh Crore, which will subscribe to NCDs/Bonds of corporates rated A and above. The fund can be seeded by the Government contributing a corpus of Rs 50,000 crore, with further investments of Rs 40,000-50,000 crore from banks and the remaining Rs 50,000-60,000 crore by financial institutions. This will provide adequate liquidity to the industry, particularly the stressed sectors such as aviation, tourism, and hospitality.
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Building public infrastructure could boost demand and create jobs. Rs 4 Lakh Crore could be demarcated for the purpose wherein private investors and investment funds could be roped-in to increase the size of the investment. To begin with, the fund could be utilised for pending projects that would immediately enhance productivity.
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CII has sought an allocation of Rs 2 lakh crore to be earmarked for bailing out state-run electricity distribution companies that have been accumulating losses. The banks are also at a higher risk of running into an economic crisis as  their current exposure to the private sector, including MSMEs, stands at Rs 29.05 lakh crore. Therefore, CII has recommended for recapitalising the banks with an allocation of Rs 2 lakh crores to manage any surge in NPAs.
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CII has also provided ways to finance the stimulus package to ensure a stable macro-economic environment. It has suggested Rs 4 lakh crore support from the subscription of government paper by the RBI as a possible measure to monetise the government borrowings. An equivalent amount can be curtailed from Government expenditure bills. 
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Borrowings from domestic and foreign sources as well as raising revenues through disinvestments could also be considered to finance the Rs 15 lakh crore stimulus.
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Click here to read the full report
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8/5/2020 0 Comments

Preserving jobs is key to faster economic recovery as lockdown is lifted

- Chandrajit Banerjee
Director General, CII

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With jobs intact, the spending capacity and demand will also remain intact. In addition, the government must boost spending on infrastructure and MGNREGA

Usually economic growth drives job growth, as jobs and livelihoods are an outcome of economic activity. I believe that the Covid pandemic which has brought economies to a virtual standstill, with jobs and livelihoods amongst its many victims, has turned this equation on its head. Investing in saving jobs and livelihoods now, can be a good insurance policy for our ability to put the country back on a high growth trajectory, quickly.
As India comes out of the lockdown, and economic activity resumes, an important part of the recovery process would be to have consumers available for the goods and services produced. This is possible only if jobs and livelihoods are preserved in the interim recovery period of 3-6 months. With jobs intact, the spending capacity remains intact and so does the demand, speeding up the economic recovery.

The government has a key role to play here. It must come forward and provide wage support to enterprises to mitigate job losses. CII suggests that banks provide additional working capital limits, equivalent to April-June wage bill of the borrowers, backed by a government guarantee, at 4-5 per cent, with a refinance guarantee from the RBI, to all enterprises.

In addition, MSMEs could be extended wage support through ESIC as well. Utilising the ESIC funds under Rajiv Gandhi Shramik Kalyan Yojana and Atal Beemit Vyakti Kalyan Yojana a corpus could be created to provide additional liquidity to MSMEs for meeting their wage liabilities.

Generating employment
Higher government spending on infrastructure is another important step for generating employment, especially in the unorganised sector, through construction activity. The National Infrastructure Pipeline, with projects worth ₹102 lakh crore, to be completed over five years starting FY20, should be front-loaded. The higher spending could be met by increasing the fiscal deficit by a margin of 0.25-0.5 per cent, as infrastructure is a productivity enhancing expenditure, and has an overall multiplier effect on the economy.

Construction sector is the second largest employer after agriculture. Out of a total estimated workforce of 500 million, about 60 million is estimated to be in the construction sector. It would be safe to assume that 90-95 per cent of these would be migrant workforce from rural areas in informal employment. Building infrastructure will recreate many of the jobs lost to the aftermath of the Covid lockdown, in this sector.

Greater expenditure on MGNREGA could be another tool to generate employment in the immediate term. CII suggests an additional spending of ₹6,000 crore, about 10 per cent of the FY21 Budget, on MGNREGA, over and above the increase in expenditure due to increase in MGNREGA wages under the Pradhan Mantri Garib Kalyan Yojana.

Labour reforms
The Prime Minister has been emphasising on reforms to enable India to leverage the opportunities that a post-Covid world is likely to present, especially in the manufacturing and export sectors. As India prepares to pitch for attracting large foreign investments, it is important to focus on labour reforms. The issue of jobs and employment, is no stranger to India. Labour reforms will help unlock the employment generating potential of Indian industry.

In additional to the traditional approach to labour reforms, Covid-19 has highlighted the importance of a few other dimensions of labour engagement that need attention.

One of the key challenges that industry is facing is that of getting the migrant workers back to work. It is both an issue of the willingness of the workers to come back and the logistics issues involved. Pandemics can strike in future too. There could be a second wave of Covid itself.

Housing, skill mapping
A long-term solution could be to create worker housing and other amenities in and around India’s industrial clusters to minimise the disruptions to the industrial activity. Some of this can be created through public-private partnership and some by the Central and State governments as part of their plans for creating industrial infrastructure.

A skill-mapping study of the returning migrant workforce can be conducted to try and place them within the States itself. In fact, skill development should become an integral part of the planning for economic growth and attracting investments so as to ensure that as much skills as possible are available to industry locally. Industry may also have to look at locating closer to where the workforce is, for their fresh investments.

Workers at their end should be willing to invest time and effort in upgrading their skills, to be able to meet industry’s demand for better skills and higher productivity.
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This article was first published in The Hindu BusinessLine on May 06, 2020
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6/5/2020 0 Comments

Industrial districts, turn the key

- Chandrajit Banerjee
Director General, CII
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Confederation of Indian Industry (CII) poll of about 100 CEOs conducted on May 4 has revealed that most of them expect the economy to contract this year. As per an earlier poll, one-third of firms expect their revenues to contract more than 40% this year. Almost half of those surveyed felt that it would take more than a year to achieve economic normalcy post-lockdown.

GoI’s May 1 decision to extend lockdown from May 4 by two more weeks, with further relaxations in places, is welcome, as it provides for a safe and calibrated opening of the economy while also containing Covid-19’s spread. This also allows governments both at the Centre and states additional time to build necessary medical capacity required, in case there is a spike in the number of Covid-19 cases. Under the new guidelines, all industrial activities in rural areas are permitted, while it is restricted in urban areas to specified areas like industrial estates, special economic zones (SEZs), export oriented units (EOUs) and industrial townships with access to control.

GoI has also divided districts into red, orange and green zones. Economic activities in red, and especially containment, zones continue to be restricted.
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The guidelines leave out large segments of economic activities not located in industrial sectors. As a result, this does not cover many business units, including MSMEs, belonging to unorganised sectors.

Providing financial stability to these business units is of critical importance. A focused strategy needed to minimise the adverse impacts of the lockdown without compromising the efforts to restrict the contagion.

The exit strategy should focus on districts with heavy presence of industrial and economic activities, or industrial clusters. The top 100-150 industrial districts could be identified and classified, based on their contribution to the national economy, presence of industrial clusters, and number of registered enterprises.

Second, the focus should be on restarting all economic activities in all parts of an economic district — including in containment zones — with all necessary safety measures in place. The classification of zones into containment zones, orange zones and green zones could be done on the basis of safety precautions required. These zones could be marked in terms of concentric circles around the hotspot.

Identified industrial districts would require a separate working protocol and monitoring mechanism for business operations under various zones. Guidelines pertaining to movement of people and vehicles, sanitisation procedures, door-to-door testing, health and social distancing protocols, etc, should be strictly followed in containment zones.

Given the economic significance of these industrial districts, more should be spent in taking measures to contain the spread of Covid-19 — e.g., free distribution of personal protective equipment (PPE), masks, close monitoring, etc. The benefits from the resumption of economic activities in such districts will hopefully outweigh the additional costs incurred on protective measures for containing the pandemic.

Third, all business activities — essential or non-essential, within specified industrial zones or outside of them — should be restarted in urban areas. Standalone facilities or industrial clusters that are not notified should be permitted to open up at the earliest. This would also enable supply chains to operate smoothly across the country.

Real-time availability of data on all types of zones within industrial districts can help businesses plan better. It is also important to permit public transport for workers and self-employed people with requisite precautions, so that they can travel to work. Standard operating procedures for workplaces and establishments in case of Covid-positive cases are available to avert a start-and-stop situation.

Focusing on the reviving industrial districts may reduce potential loss of industrial activity by around 50%. This, in turn, could provide relief to the national economy, along with providing financial sustainability to business units, preserving livelihoods and bringing relief to all workers.
​
 This article was first published in The Economic Times on May 04, 2020
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