October 12, 2021
  • October 12, 2021

Economists recommend additional support for MSMEs

By on October 7, 2021 0

Economists recommend additional support for MSMEs

New Delhi, October 7 (KNN) According to key economists who worked on the FICCI Economic Outlook Survey, they felt that continued support remains particularly critical for MSMEs and the informal sector.

Changing MSME classification standards for NPAs, reducing cash margins, changing personal collateral requirements will go a long way in alleviating some of the challenges these businesses face. The industry has been under immense stress due to two consecutive waves of covid-19. It was suggested that additional support facilities for MSMEs and troubled sectors debt (Kamath Committee) should be introduced.

The median annual GDP growth forecast for 2021-2022 is 9.1%. This is a marginal improvement from the growth projection of 9.0% recorded in the previous survey (July 2021).

The economic recovery, after the second wave of the pandemic, appears to be holding up and this is also reflected in the incoming data on various high frequency indicators. The next end-of-year celebrations should support this dynamic.

However, with Diwali being a major festival and with a certain sense of complacency with the Covid situation, the likely increase in movement of people may again lead to an increase in the number of new Covid cases. A note of caution continues to be required with regard to the health and economic situation.

The median growth forecast for agriculture and related activities has been set at 3.2% for 2021-2022. The resumption of monsoon rains in the latter part of the season and the subsequent increase in kharif area should keep agricultural sector growth expectations optimistic. The industrial and service sectors are expected to grow by 12.9% and 8.6% respectively during the year.

This round of the FICCI Economic Outlook Survey was conducted in September 2021 and attracted responses from leading economists representing industry, banking and financial services.

Participating economists were also invited to give their views on the upcoming monetary policy review and the future direction of monetary policy.

There was clear unanimity that the Reserve Bank of India would maintain the status quo on the repo rate and maintain an accommodative stance in the next monetary policy.

Growth clearly remains a priority for the Central Bank and the same was clearly communicated during the latest monetary policy announcements. The latest GDP figures for the first quarter of 2021-2022 showed strong year-over-year growth, supported by a weak base. However, on a sequential basis, a contraction in GDP growth was reported in the first quarter. In addition, inflation – which is seen as a major concern – has shown some deceleration over the past two months. Thus, it is widely expected that an accommodative position will be maintained in the short term.

GDP data for the second quarter and the upcoming holiday season should give a clearer picture of where we are heading on the road to recovery and how the demand situation is going. In addition, we will also get more clarity on the covid situation and the possibility of a third wave after the holiday season. Until then, the central bank could continue to resort to softer liquidity drainage policies. Some participating economists have also indicated that the RBI is considering narrowing the policy rate corridor by raising the repo rate during the next monetary policy review.

Regarding the return to the normalization process, it was widely felt that the Central Bank could indicate a change of stance from accommodating to neutral at the February 2022 policy meeting. However, a hike in the repo rate does not seem imminent until the next fiscal year (April 2022). In addition, the path to positive real interest rates should be staggered. Much would depend on the increase in domestic price levels and the extent of the reduction by the Federal Reserve.

The survey places the median forecast for the CPI-based inflation rate at 5.6% for 2021-2022, with a minimum and maximum range of 5.4% and 5.8% respectively. Retail prices are expected to weaken slightly in the third quarter of 2021-2022.

Regarding other measures the Central Bank can take to support growth, participating economists felt that the Reserve Bank of India has done a commendable job in easing the national economic and financial situation throughout the pandemic. It was stressed that maintaining adequate liquidity would remain important in the future even as the Central Bank moves towards normalization.

In addition, when it comes to downside risks, most respondents believe that while policy normalization in advanced economies will weigh on asset prices and foreign exchange markets, thereby triggering capital outflows from emerging markets, the impact of the quantitative reduction on India will probably be limited this time around. . Economists have indicated that the chances of degression are well appreciated by market participants this time around, which will act as a cushion for emerging market economies.

The high volume of foreign exchange reserves stored with the Reserve Bank of India will provide the economy with much-needed resilience against the headwinds resulting from the downsizing process.

In addition, the comfortable position of the current account, the effective intervention of the RBI in the foreign exchange futures market, the flows linked to the IPO and the likely inclusion of India in the global bond indices. should help reduce any significant depreciation bias on the Indian rupee. However, participants warned that uncertainties surrounding the Chinese economy as well as soaring global inflation levels are some of the external risks to watch out for.

Economists have suggested that while foreign exchange reserves could provide a cushion to extreme volatilities in the currency market, the country should continue to encourage stable long-term capital inflows while discouraging short-term volatile flows. For this, the development of an environment conducive to investment is of the utmost importance, which will help to cope successfully with the situation. In addition, improving the possibilities of using the national currency for commercial payments could also prove beneficial in the process.

Finally, rising inflationary pressures have become one of the main macroeconomic concerns of recent times. Participating economists were invited to share their views on the nature of inflation.

While the economists participating in the survey were not divided that the current rise in prices was due to challenges breaking free from supply-side constraints, they were divided on determining the very nature. the trajectory of inflation. With the decrease in new cases of infection, the resumption of monsoon rains in September, and the availability of sufficient capacity in the system, a group of economists estimated that inflation levels (especially the food inflation) would continue to moderate in the future. Greater availability of unused capacity will also keep companies away from any significant increases in the prices of finished goods.

However, other interviewees felt that if the price hike initially had a transient component due to the pandemic-induced supply disruptions, the nature of inflation may have become more sustainable in recent months. Rising global commodity prices – whether crude oil, industrial inputs, metals, agricultural products (food and raw materials) – have pushed up aggregate price levels globally. and is also seeping into the Indian domestic market. This remains a major risk factor on the inflation front. This group felt that high inflation levels despite high base effects contradict the idea that inflation is transitory in nature and therefore appears to be more rigid than previously anticipated.