New Delhi, Mar 12: The Federation of Indian Chambers of Commerce and Industry (Ficci) wants the incoming government to use the multiplier effect of expenditure, specifically in public work, to kick start the economy.Such an expenditure would increase the gross domestic product (GDP) of the economy as much as four times, the chamber felt.
"Such a kick to the production process of the economy can immediately stimulate demand for core sector products like cement, steel and chemicals. It will also immediately stimulate the job market for the poorer section of the population, bring purchasing power to smaller businesses and result in demand for other sectors," Ficci secretary-general Amit Mitra said.
Mitra further felt that the government should target to turnaround the economy within four months. ``If we let the current morass of slowdown to deepen, the economy will slip into recession,'' Mitra cautioned.
He added that the government need not worry about the two risks -- increase in fiscal deficit and inflation -- that usually accompany such measures.
"It is worth risking a small increase of up to 0.5 per cent in fiscal deficit at this stage in order to recoup the revenues in the next six months," Mitra stated.
He felt that a small increase in fiscal deficit would be remedied very quickly as excess capacity is available in the core sector production. "Increase in production would mean more taxes. Besides, there will be some import of heavy equipment which will generate import revenues. Also increased purchasing power increase means more direct and indirect taxes.
Further since there is excess capacity available, the supply side response will come immediately, which would reduce the risk of inflation, Mitra added.
He further suggested that the reforms measures should be carried out in the first 30 days, and that the impact should be seen within 90 days.
The chamber has also suggested other measures for reviving the economy such as:
(i) Immediately remove some of the transaction cost bottlenecks such as inspector raj, excise inspection and octroi;
(ii) Immediate disinvestment in public sector units without any debate on shedding majority stake; and
(iii) Bring down interest rates to level prior to intervention by Reserve Bank of India two months ago and let exchange rate be determined by the market forces.
The interest cost has also to be brought down from the present level to the level before the RBI intervened in an attempt to prop up the rupee. Mitra said the rise in the interest rates would hurt the industry next month onwards, if it was not rolled back.
As for the exchange rate, Ficci felt ``the new government should let market forces operate in a calibrated manner'' to determine the level of the rupee. ``If we do not allow the market to operate, you may find a need for sudden devaluation which could throw the entire investment plans for project implementation out of gear,'' Mitra cautioned.
He further felt that business would become more viable if the government removed some of the transactions cost in one stroke. Elimination of inspector raj, excise inspection and octroi alone would halve the transaction cost. Government should have random checks and make disclosure of excise voluntary, Mitra added.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
