Assocham has also told Finance Minister Arun Jaitley that it’s the government and state-owned firms, rather than the private sector, which should lead the investment revival in the country
The Associated Chambers of Commerce of India stated it had ‘strongly urged’ Finance Minister Arun Jaitley not to slash Plan spending to meet the fiscal deficit target for FY15. It also told the FM it’s the government and state-owned companies, rather than the private sector, which should lead the investment revival in the country.
“Heavens would not fall if the fiscal target of 4.1 per cent in the current financial year (FY15) is not met and the deficit moves up somewhat.
“But it will be quite detrimental to the efforts for economic revival if different ministries are asked to squeeze their planned budget and it saves the day for the fiscal consolidation,” the industry body stated.
Business Standard had reported on Friday that Jaitley might effect an average of 20 per cent Plan allocation cut across Union ministries and departments to save about Rs 47,000 crore (Rs 470 billion) to meet the tough fiscal-deficit target.
This has to be done in the face of about the expected tax revenue shortfall for the financial year, Rs 1.05 lakh crore (Rs 1.05 trillion), as well as the possibility of disinvestment target of Rs 58,425 crore (Rs 584.25 billion) not being met for the year.
Assocham said even if an investment revival were to happen, it would be a time lag of at least 18 months before it reflects in the manufacturing sector.
“In any case, where is the question of investment revival in the private sector when the existing capacity remains unutilised to the extent of 30-40 per cent in several industries?” it asked.
Besides, it said the private sector was under a heavy leverage and finding it difficult to service the debt under an interest rate regime, which remained ‘hostile to consumer demand and investors’ risk appetite.’
“Under these circumstances, the only way left for investment to return is through state funding of the infrastructure -- both economic and social as also asking the cash-rich public-sector companies to create additional capacity and expansion either through new projects or through asset acquisitions,” said the industry body.
In his mid-year economic analysis, Chief Economic Advisor Arvind Subramanian had stated there should be an increase in public investment to revive the economy.
He made a case for public investment acting as a catalyst to pull in private investment.