$1-trn investments in each of next 5 years can spur GDP growth to 10%: CII

Around $5.74 trillion would be needed to boost GDP growth to levels that can pull up 27 crore Indians from below the poverty line, and generate 70-80 lakh jobs a year, CII president said

India would need over $1 trillion investments every year for the next five years if annual GDP growth is to reach 10 per cent, the Confederation of Indian Industry (CII) said on Monday while presenting its wish list to the new government led by Prime Minister Narendra Modi.

Ahead of the Budget and the Reserve Bank of India’s (RBI’s) monetary policy committee (MPC) meeting, it also called for reduction in rates of various taxes and repo rate.

Around $5.74 trillion would be needed to boost GDP growth to levels that can pull up 270 million Indians from below the poverty line, and generate 7-8 million jobs a year, CII president Vikram Kirloskar said. 

Of this, total investment for infrastructure required will be an estimated $1.18 trillion while sectors including agriculture, industry and services together would demand $ 4.56 trillion, the CII said. 

CII president-designate Uday Kotak said equity is currently charged at multiple levels. He said, “If we want to bring back the animal spirits for entrepreneurs and businesses to be investing in building of the country, the cost of equity needs to go down. Since equity cost is too high, most favour putting their money into debt, leading to lack of risk capital in the economy, which can go into the building of new and existing businesses.” 

The Modi government, during its first tenure, had promised to reduce corporation tax by five percentage points to 25 per cent, but it was not done for all companies. 

On fiscal deficit management, the CII suggested the use of a composite index, which captures both the deficit and its quality. To boost investment, it wanted the MPC to cut the repo rate.

Kotak also called for re-structuring of interest rates in the economy to enable banks to reduce the rates.

“Banks are competing for financial savings. The ability of banks to drop their deposit rates are linked to the interest rates offered by the sovereign and others parts of the economy. Therefore, if we move to a more balanced and more linear basis of financial savings across the economy, that would make the price of money more attractive for users,” he said. 

This, he said, would effectively boost demand. “So, in addition to the lowering of interest rates, we need some sort of structural look at interest rates by different instruments and segments which are creating this distortion in the system,” Kotak said.

Within debt, to boost small savings, the government has effectively launched schemes such as the national savings certificate. 

The rates of interest on, say, provident funds are at 8-8.5 per cent today, and they’re available across the country, Kotak said. 

So, savers are getting attracted to these sovereign schemes. If you take deposit rates today offered by most banks, they're in the range of 7-7.4 per cent, he said. “If we want to reduce the cost of money, we need some clarity on how we in the system can reduce the deposit cost for being able to give lending rates which are more attractive,” Kotak said.