Give commodities a booster dose: ASSOCHAM

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Dec 2008

It is an era of stimulus packages. Even as various industries are struggling to keep afloat, governments across the globe are announcing packages to boost the industries so that a major crisis can be tackled. At a time when global meltdown is spreading its tentacles, world is gearing up to take on the situation with several measures like special packages for several

areas.
In India also the government announced various measures to tackle the situation arising out of liquidity crunch. India’s several industries are struggling as the world witnessed a slump in demand following the meltdown. Areas like diamond and textiles will face the crunch more as they depend a lot on exports to several nations like the US and EU countries.
In India even as the government is mulling various steps to help several sectors, it is yet to plan a package for the commodities sector. Drawing the government’s attention towards this, Associated Chambers of Commerce and Industry of India (ASSOCHAM) has mooted a proposal for constitution of Rs 1 lakh crore revolving fund to assist infrastructure firms to hike their activities to beat current meltdown in economy.
The chamber said since increased infrastructure investments are being stressed by government, financial institutions & Indian industry, the commodities sector also needed a booster dose.
In its Mid-year economic review, the ASSOCHAM has argued that the proposed fund would help draw increased investments from concerned stakeholders for infrastructure projects.
“Several private sector massive investment projects in steel, auto, transportation, fertilizer, refineries & oil and gas exploration sector currently face severe capital shortages to execute their planned expansion and thus the suggested fund would be an ideal way out to release a portion of funds to their promoters to execute them with their internal accruals,” said ASSOCHAM.
The review points out that the fall in corporate profitability has already affected flow of savings into capital market as is clear from quarterly statements of leading corporates. The effect of this is compounded by global financial crunch that has led to withdrawal of $13 billion from foreign portfolio investment, pointed out ASSOCHAM.
ASSOCHAM says raising of FDI limit in insurance sector to 49 per cent is critical as it now expects further reforms in the wake of demonstrated political will of the government. The criticism by some political parties against raising the FDI limit in insurance sector appears more based on outdated ideological constraints rather than on economic realities.
Despite the expansion of insurance in 18 years after the first set of reforms in 1991, only 1 per cent of the population is covered by insurance. The opportunity for expansion is thus huge but it requires a far larger capital base to tackle than could be raised within the country.
The chamber has welcomed the political will that the government demonstrated in Parliament last week in pushing through the insurance and other Bills expediting economic reforms. These moves are in right direction as the ASSOCHAM mid-year review emphasised the need for boosting private investment in infrastructure as well as increased public investment in it.
The economy is mostly in the manufacturing sector where the slowdown has in demand and fall in export orders have combined to bring down output growth to a negative level for the first time. Industry now looks forward to second tranche of measures by the government for stimulating the economy.
The grave concern the mid-year review expresses on employment situation as a result of the downturn is also a matter that ASSOCHAM as a foremost spokesman of Indian industry has brought to government notice earlier.
The answer to this crisis in employment is not sponsoring of hare-brained schemes like blocking job reduction by corporates as is stated to be under consideration of the ministry of labour and employment but enabling corporates to remain afloat at high levels of employment and output through demand creation measures.
Service economy already accounts for some 52 per cent of the GDP. It should not be allowed to flounder in the wake of global downturn and loss of domestic output. In this connection, reports that some sectors like public sector banks are planning to expand their hiring programmes, are welcome.
High levels of infrastructure investment and enabling labour intensive sectors like textiles, gems and jewellary, leather and services to overcome the current problems they face are critical aspects of the stimulation package the government is expected to announce in the next few days.
At the same time, individual industrial units should be enabled to fine tune their staff requirements to changing demand patterns and rapidly changing technological compulsions; otherwise the increasing number of sick units would only defeat the objective of maintaining and expanding high levels of employment.
The policy aim should be to expand aggregate employment through more investment and extended manpower training programmes in tune with changing technologies.

Source: Commodity Online