India moves to rescue flagging economy
Police officers stand guard on the Howrah bridge in preparation for smooth traffic flow during the nationwide strike in Kolkata on May 31, 2012. India’s opposition parties held a nationwide strike May 31, vowing to shut down the country in protest against steep petrol price rises announced the previous week. Political parties and trade unions planned anti-government marches, roadblocks and pickets outside government offices to focus anger on the administration of embattled Prime Minister Manmohan Singh.
India finally got down to business Tuesday, unveiling a plan to boost exports and pushing forward on small-scale reforms in a bid to revive flagging economic growth.
For exporters, the government offered incentives valued at some $180 million, according to the Times of India. Among other measures, the commerce ministry will offer subsidized loans to small-scale garment manufacturers, as well as companies making processed farm products, toys and sports good, the paper said. The subsidy will knock 2 percent off bank rates, in an effort to speed expansion and create jobs, while taking advantage of the cheap rupee.
According to the Economic Times, exporters were in "seventh heaven" over the seven-point agenda, which exceeded their expectations.
However, economists questioned whether the relatively modest measures would be enough to achieve the whopping 20 percent increase in exports targeted by the commerce minister.
"The measures will help to cushion against downside risks in the Indian export sector due to European crisis," Dharmakirti Joshi, chief economist at Crisil, said via email. "The target of 20% export growth is quite ambitious in view of the depressed global environment. If the European crisis spins out of control, Indian exports too will be hit hard."
Prime Minister Manmohan Singh's cabinet will take up pension reform and recapitalization of regional rural banks on Thursday, and the PM has deputed civil aviation minister Ajit Singh to convince Trinamool Congress supremo Mamata Banerjee to allow a long-pending measure to permit foreign direct investment in aviation, TOI reports elsewhere. Notably, it was Banerjee, essentially, who forced the government to roll back a move to loosen the rules on foreign investment for multi-brand retailers like Walmart earlier this year — souring the so-called "India story" for many investors.
Meanwhile, at a press conference on Tuesday, business leaders from the Confederation of Indian Industry (CII) made a case for 10 more moves to boost growth, according to the Hindu.
The 10-point CII economic revival package suggests reducing Repo rate and CRR, allowing accelerated depreciation for investments in plant and machinery at 25 per cent with immediate effect, increasing FDI limits in civil aviation and defence, allowing FDI in multi-brand retail and providing interest subvention of two per cent on export credit for a temporary period of six months.
Other suggestions are creating an export development fund, clearing 50 large projects in the next 30 days in consultation with State Governments and relevant ministries, announcing a clear plan for fiscal consolidation and 25 per cent weighted tax deduction on expenditure incurred by companies “going green”.