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FICCI rings recession alarm

Our Bureau

BANGALORE, July 20

THE domestic economy could be slipping into recession if urgent steps for recovery and confidence building are not taken, FICCI President, Mr Chirayu R. Amin, has warned.

For the first time in post-reforms period, there has been an unprecedented slide in the key sectors of agriculture, industry and services; while corporate morale across the country is low, Mr Amin told reporters after a FICCI executive meeting here on Th ursday.

Releasing the quarterly Business Confidence Report which found some grim macro-economic portents, Mr Amin said, ``Revival of investment demand hinges very much on boosting business confidence that has plummeted sharply in recent months.''

He has suggested to the Centre a four pronged strategy to perk up the economy by:

* Bringing about changes in labour laws and Essential Commodities Act as promised in the Budget;

* Rationalisation of corporate tax, abolish MAT and restore investment allowance;

* Release of funds idling with various ministries for plans; and

* Speeding up the disinvestment process.

Respondents to the survey also suggested some radical changes like capital market reforms to build confidence in small investors; faster implementation of infrastructure projects; taxing of farm income and lower government overheads.

While 57 per cent of the corporates surveyed feared that a recession was closing in, 42 per cent felt the slowdown would pass over. However, they feared that it would hit export growth, especially of software. Consumer spending will fall as a result of a depressed stock market.

For the first time, GDP growth rates have slid for two post- reforms successive years: 6.6 per cent in 1998-99 to 6. per cent in 1999-2000 to 5.2 per cent in 2000-01. For the first time in the 1990s, all the three key sectors agriculture, industry and se rvices, have shown a slump.

The study for the 2001 period covered CEOs of 225 Indian corporates in sectors like consumer goods, capital goods, pharma. chemicals, intermediate goods and services.

According to Mr Amin, a firm recovery seems elusive at least in the short term. Consumer demand may pick up only with a good kharif crop in H2.

Manufacturing and construction sectors are the worst hit. Growth rates in the construction sector have decelerated from 10.3 per cent in the 1999-2000 Q4 to 0.7 per cent in 2000-01 Q4. Manufacturing growth rates have slowed down from 7.6 per cent to 3.5 per cent over the same period.

Till Q4 of 2000-01, recessionary trends were showing in four of the nine major light industry segments and five of the seven heavy industry segments. According to latest production trends, the slowdown has sharpened this year to 1.9 per cent in May 2001. Growth in manufacturing too slipped to 1.6 per cent in May 2001.

Until now, the external sector was showing some gains. But export growth rates fell sharply from 22.9 per cent in January 2001 to 4.5 per cent in May 2001. Imports have fallen more sharply during February, April and May this year.

Non-oil imports are 6 per cent lower in April-May this year.

The survey also fears negative impact on revenue flows: already, April-May 2001 figures show a net tax revenue collection slide by 40 per cent; non-tax revenue by two-thirds, leading to a slowdown in capital spending in the plan account. This, Mr amin sa id, may also hinder recovery.