India needs a fiscal package to stimulate demand as lower household savings due to higher health expenditure incurred in the 2nd wave of Covid 19, and the fear of a 3rd wave are restricting growth in private consumption, according to an industry survey of 180 companies.

“In addition, there has been permanent impairment to income for many households who have faced job losses or have lost bread earners to Covid-19,” Federation of Indian Chambers of Commerce & Industry (FICCI) said on Monday, citing its latest round of Business Confidence Survey.

Survey saw a sharp fall in the overall business confidence index to 51.5 in the current quarter compared to 74.2 reported in the previous round, when the economy was rapidly recovering from the devastating impact of the first wave that had seen a 68-day nationwide lockdown beginning 25th March, 2020.

The 2nd wave of Covid-19 pandemic hit India’s nascent economic recovery that took place from the third quarter of FY-21. Although there is no official estimate of its impact on the economy, private forecasters, such as S&P Global Ratings, slashed its earlier growth forecast of 11% to 9.8% for FY-22 under a moderate scenario. According to a Reserve Bank of India projection on April 7, the economy was expected to grow at 10.5% in 2021-22 with a quarterly path of 26.2% in Q1, 8.3% in Q2, 5.4% in Q3, and 6.2% in Q4.

The proportion of respondents citing weak demand situation as a constraining factor increased to 70% in the latest survey round compared to 56% respondents in the previous survey released in February 2021.

“Since a much larger proportion of the population has been impacted in the current wave, measures to support demand revival will be crucial for the economy to recover from the latest pandemic induced shock,” the survey said.

The industry wants fiscal stimulus to boost demand to stimulate the economy, such as direct income support to rural as well as urban poor, income tax reductions for the middle class and temporary reductions in indirect taxes. “On the fiscal side, companies unanimously felt the need for another fiscal package, focusing majorly on addressing the demand side,” the survey said.

Additionally, Indian Inc called for targeted fiscal support in the form of tax waiver & financial assistance to the sectors – hospitality, tourism and civil aviation – that were previously kept out of the stimulus package, but were deeply impacted by it.

“A majority of the respondents felt that frontloading capital expenditure, by both central and state governments, was the need of the hour as this would greatly build & sustain market sentiments & demand,” the survey said.

Respondents of the survey unanimously said the government must, first & foremost, focus on controlling Covid cases. “A massive vaccination drive could decouple India’s economy from another pandemic induced shock,” it said. The industry wants real time information on the status of pandemic & corresponding response measures to dispel any doubts and panic.

Many respondents raised the issue of credit squeeze & called upon the banking community to enhance lending at a reasonable rate. “Alongside, RBI should continue to ensure ample liquidity in the system & must take additional measures to encourage banks to lend more,” it said.

Companies also want moratorium on loans, principal and interest payments, for at least another 6 months, it said. “Participants emphasised on the need for a stable interest rate regime for about 12-18 months. They also recommended that the RBI must continue with being accommodative till sustainable normalcy returns to the system,” it added.

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