Ficci flags industrial slowdown concerns, seeks rate cut

Concerned over weak industrial performance and slack in domestic private sector investments, India Inc is pitching for a rate cut and deeper reforms.

"Given that the industrial performance remains weak and private investments have not picked up, the moderating trend in prices opens up space for a more accommodative stance in the monetary policy,'' Federation of Indian Chambers of Commerce and Industry (Ficci) said in its internal report.

The report, which was discussed at the industry chamber's national council meeting here today, said though the Reserve Bank of India cut the repo rate by 25 bps earlier this month, a steeper cut is needed at this juncture.

While it sees the impact of GST waning over the next few months, the industry chamber said persisting volatility in the manufacturing sector is a matter of concern and calls for deeper reforms, especially at the state level.

A turnaround in domestic private investment is critical to push growth and employment generation in the economy, it said.

It said that economic growth has taken a beating mainly on account of weak manufacturing growth while the introduction of GST led most firms to undertake de-stocking, halting fresh manufacturing of goods. As the initial impact of the GST smoothens out, economic growth is likely to return to a trajectory of around 7%, it said.

The manufacturing sector, which has a total weight of 77.6% in the index of industrial production, contracted 0.4% in June, entering the contractionary zone after 32 months. Major manufacturing items such as chemicals, coke and refined petroleum products, textiles, food products, electrical equipment and machinery and equipment reported contraction during the month, it said.

"The latest round of Ficci's business confidence survey reports a muted sentiment and corroborates with the situation at ground level. The expectation of respondents with regard to operational parameters such as profits, sales, and investments indicate that a turnaround is yet to find a solid base. The companies continue to operate at suboptimal capacities and the capacity utilisation rates have not seen improvement for some time now,'' the report said.

Further, the latest survey results also report a strain in demand conditions, it said, adding around 73% of the respondents cited weak demand to be a constraining factor for businesses as against 59% in the previous round.

It said rural demand was expected to pick up, backed by a good monsoon and expectations of robust food production. Also, the upcoming festive season will provide some thrust to consumption activity.

On the fiscal position, Ficci said the government seems confident of meeting its fiscal deficit target of 3.2% of GDP for the current fiscal. The government is optimistic about higher revenue generation from tax and non-tax sources, such as disinvestment receipts in the latter part of the year.

Moreover, the GST collection of Rs 92,283 crore in July indicates an increase in the tax base as GST brings in greater efficiency and makes it more difficult to evade taxes. Some businesses are yet to claim their input credit for pre-GST stock which may impact overall collection to the government. However, revenues greater than the targeted number in the first month of GST itself injects optimism about future earnings, it said.