India Inc agrees to PM Modi’s call to modify approach

Comes at strategy session on global turmoil, opportunities

Captains of corporate India on Tuesday pledged to step up investments as they responded to a fervent call by Prime Minister Narendra Modi to take risks and work with his government to translate the global turmoil’s fortuitous positives for the Indian economy like low prices of oil and other commodities into a huge opportunity.

In a three-hour meeting at Modi’s 7, Race Course Road residence attended by them besides bankers, policymakers and economists, industry leaders concurred with the government that China’s slowing growth and the volatile global capital and currency markets would have a relatively less adverse effect on India compared with many other major economies, but stressed that high cost of capital remained a dampener. They also called for more steps by the Centre and states to improve the ease of doing business.

While subdued commodity prices could reduce the pressure on India’s budget and current account deficits, India could also reasonably hope for more foreign investment as money flows out of China, Modi is learnt to have told the corporate top brass. This view was echoed by chief economic adviser Arvind Subramanian, who cited recent examples to suggest that global investors could look at India as an alternative investment destination as China shifts to a regime of less manufactured exports and more domestic consumption. Sunil Mittal of Bharti Airtel, however, said until and unless domestic investments picks up, global investors could remain chary.

Modi’s emphasis on enhanced private investments comes close on the heels of the first-quarter GDP data that revealed the pick-up in fixed investment growth to 4.9% from 4.1% in the previous quarter was largely helped by the government.

While Modi exhorted large corporates to make job-creating investments, he also promised them more steps to catalyse infrastructure investments and attract overseas capital. While the need to fast-track productivity-enhancing reforms like the goods and services tax figured in most of the 27 speeches by different stakeholders at the conference, there were specific demands from industry for further policy support to stressed sectors like steel, power discoms and textiles. Speaking to reporters later, finance minister Arun Jaitley said the Prime Minister laid emphasis on low-cost manufacturing and felt the strength of the economy lay in its huge human resource, the size of the domestic market and its rather limited export dependence. Jailey said a policy focus on the agricultural sector would help increase purchasing power in the rural segment and hinted at using MNREGA funds as a possible tool for skill development.

Suggestions from industry, sources said, included creating a mechanism similar to the Troubled Asset Relief Programme of the US government, where the government buys equity and troubled assets from financial institutions to strengthen the financial sector. There was also proposal to set up a Stressed Assets Bank to bail out sectors with projects stalled for various issues beyond their ability to address.

Having hit a 15-month low in the previous session, the Sensex rose 1.7% to touch 25,318 points on Tuesday as financial sector shares gained on speculation the Reserve Bank of India might dilute its proposed guidelines on base rates. Modi’s meeting with industry honchos on how to tide over the global economic turbulence also boosted market sentiments. The rupee, which had dipped to a two-year low of 66.83 to the dollar on Monday, inched up to 66.49 on Tuesday.

Apart from Bharti’s Mittal, Reliance Industries chairman Mukesh Ambani, Tata Group head Cyrus P Mistry, Aditya Birla Group head Kumar Mangalam Birla and and ITC chief YC Deveshwar were among the industry leaders who attended the meeting. Reserve Bank of India governor Raghuram Rajan, ICICI Bank CEO Chanda Kochhar and State Bank of India chairman Arundhati Bhattacharya and economists like Subir Gokaran and Subramanian as well as Niti Aayog vice-chairman Arvind Panagariya were also present.

Bhattacharya said after the meeting: “The government is looking at ways to expedite clearances for stalled projects and revive them. There was a focus on how to make productive assets already created in many projects.” The PM, she added, wanted industry to focus on sectors such as tourism which have potential to generate huge employment, and also to increase skill development programmes.

Mittal said that government should provide them more spectrum, and liberalising trading/sharing rules should be a priority. He highlighted how the current spectrum caps prevented his firm from buying how much it wanted in the last auction.

According to Jaitley, participants at Tuesday’s meeting called for early parliamentary passage of the bankruptcy code which, he said, was in the final stages of drafting. Rationalisation of the Prevention of Corruption Act would also be of great help to industry, he added.

The CEA said relatively cheaper oil and commodity prices would bring down the cost of building infrastructure, making investments more attractive in India. The fall in commodity prices would give a further boost the government’s plan to spend Rs 70,000 crore more in FY16 than in FY15 to to build roads, highways, railways, smart cities and affordable housing, he said. Moody’s Investors Service on Tuesday said India’s current account deficit is likely to remain low supported by declining oil prices but a slow recovery in industrial output and investment would drag economic growth to 7% in the current fiscal.

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