Economy faces liquidity problem, demand recession: Assocham president Niranjan Hiranandani

The economy is facing a liquidity problem and demand recession, and it requires measures to lift consumption, including reduction in goods and services tax and personal income tax and improved credit flow, to revive, Assocham president Niranjan Hiranandani has said.

The country’s economy needs to grow at 12% — more than double of the growth rate in the first half of this fiscal — to be inclusive, the industry body head told ET.

“The demand side economics is not taken care of,” said Hiranandani, who is also cofounder and managing director of real estate developer Hiranandani Group of Companies.

There is a demand recession, and to overcome it the industry needs a one-time rollover of banking credit which was done in 2008 during the Lehman Brothers crisis, he said. It calls for a cut in GST and personal I-T rates, he said.

Hiranandani said liquidity has dried up in the economy especially after demonetisation in 2016 when banks stopped lending. “They did not lend to SMEs, builders and small players but to non-banking financial companies, which are now in the line of being saved,” he said. “They can’t save other people when they themselves are being saved.” Batting for higher government expenditure, Hiranandani said, “World over you always overspent in a recession. It’s a question of saving the economy. You’re in distress; you’re in a war.”

India’s GDP growth rate slumped to a six-year low of 4.5% in the July-September quarter. The government has taken a series of steps to boost supply. It reduced corporate tax rate, released `70,000 crore to state-run banks, and made additional provision for lending and liquidity of Rs 5 lakh crore to increase credit flow to industries, among others. Experts now call for measures to boost demand.

On the employment front, Hiranandani said he is “scared of the lack of employment potential.” Infrastructure, textiles, tourism, micro, small and medium enterprises and education sectors are employment generators that can lead to inclusive growth that goes beyond GDP, he said.

Though the central bank has halted monetary easing after cutting rates by 135 basis points this year, Hiranandani advocated further cuts even as the Reserve Bank of India urged banks to pass on rate cuts.

“When the economy moves up…all this trust deficit will go,” Hiranandani said “You bring back the double-digit growth in the economy, (and) every company will invest.” On the US-China trade war, the industry captain said India hasn’t benefited and other countries have benefited much more.