Supply-side pressures arising from the West Asia war continue to persist, and businesses need targeted liquidity support, industry lobby group Confederation of Indian Industry (CII) said on Sunday.
The next phase of policy response needs to focus on targeted liquidity support, credit facilitation, trade cost management and foreign exchange stability, it said in a statement outlining 20 steps required to address the spillover effects of the war on the Indian economy.
Chandrajit Banerjee, director general, CII, said in the statement that the government’s and the Reserve Bank of India’s (RBI) early measures have helped stabilize sentiment, underscoring policy responsiveness in the face of external shocks.
But the situation continues to evolve, and energy, logistics, and trade channels remain under pressure. Several sectors continue to face operational and financial stress, particularly micro, small and medium enterprises (MSMEs), exporters and energy-intensive industries, he added in the statement.
CII proposals
The lobby group pitched for a credit guarantee scheme as part of a list of measures it has prepared for the government’s immediate, short-term and long-term consideration.
Under the scheme, collateral-free working capital can be extended to affected businesses through government-backed guarantees, particularly to MSMEs, exporters and gas-dependent sectors, the CII said.
The CII also pitched for a three-month moratorium and restructuring window for MSMEs, especially exporters and ancillary units linked to export supply chains.
This may include calibrated flexibility in asset classification rules, with a defined deferment before special mention account (SMA) and non-performing asset (NPA) recognition is triggered, limited to sectors where disruption is demonstrable, the CII said.
RBI could institute a special refinance window for small businesses and other affected sectors, complemented by targeted liquidity support, enabling banks and non-banking financial companies (NBFCs) to continue extending credit at reasonable cost to productive sectors, the statement said.
“The ministry of finance in conjunction with RBI could provide immediate contractual and operational relief to industry, especially MSMEs, by extending delivery timelines for central and state public sector unit contracts by 3-4 months without invoking liquidated damages clauses, reduce performance bank guarantee and security deposit requirements to minimal levels to ease liquidity constraints,” the industry body proposed.
In addition, temporary relief in electricity tariffs may also be offered to help manage rising input costs during the disruption period, it added.
The CII’s proposals are significant because many large businesses depend on MSMEs for raw materials and other inputs, including goods and services, for their final output. Stress among small businesses could impact larger factories as well.
India has a large MSME base, which accounts for about 36% of the country’s manufacturing output and 45% of exports, according to the MSME ministry. The sector is also the second-largest employer after agriculture.
The CII also sought a cut in import duties on energy inputs to mitigate the cascading cost impacts of the supply chain disruption. “This could include temporary waiver of the 2.5% customs duty on LNG imports,” it said.