Indian Prime Minister Narendra Modi (C) waves to supporters at the Trade Facilitation Center And Craft Museum after offering prayers at Kashi Vishwanath temple, in Varanasi on May 27, 2019. Picture: SANJAY KANOJIA / AFP
Indian Prime Minister Narendra Modi (C) waves to supporters at the Trade Facilitation Center And Craft Museum after offering prayers at Kashi Vishwanath temple, in Varanasi on May 27, 2019. Picture: SANJAY KANOJIA / AFP

New Delhi — India’s slowing economic growth is of serious concern and it has to cut tax and interest rates urgently to revive the economy, a top industrial body said on Monday just before Prime Minister Narendra Modi starts his second term.

The economy grew 6.6% in the three months to December — the slowest pace in five quarters — and the Federation of Indian Chambers of Commerce & Industry (FICCI) said the bigger worry was that domestic consumption was not growing fast enough to offset a weakening global economic environment.

“The recent signs of slowdown in the economy stem not only from slow growth in investments and subdued exports but also from weakening growth in consumption demand,” FICCI said, suggesting measures the government could adopt in the next budget in June.

“This is a matter of serious concern and if not addressed urgently, the repercussions would be long term.”

Modi takes the oath of office on Thursday after winning a thumping majority in the general election despite the agricultural sector’s economic woes, a shortage of jobs and the stuttering economy. He needs a finance minister to help navigate through the challenges facing the economy.

Issues slowing industrial output and manufacturing growth include slumping car and two-wheeler sales and a drop in airline passenger traffic.

The FICCI said the new government should cut corporate and individual taxes, expand a programme of handing 6,000 rupees ($86) a year to poor farmers to boost consumption demand and consider tax concessions for exporting manufacturers.

The Confederation of Indian Industry said it was crucial to reduce the tax burden and expand the scope of investment allowance to all sectors, while higher incentives should be given to exporters.

The FICCI also called for an interest-rate cut from the Reserve Bank of India  as real interest rates have remained high for a long time with commercial banks reluctant to pass on the benefits of recent cuts.

When Modi took power for the first time in 2014, global oil prices fell. But as he gets set for a second term, rising oil prices could push the current account deficit higher.

The body also said the trade war between the US and China could further slow down global trade and hurt India's already sluggish exports.

“Amidst rising uncertainties and economic challenges on both the domestic and global front, there is an urgent need to re-energise the engines of growth and pump prime the economy,” the FICCI said.

The budget "is an opportunity for the government to boost consumption and investments through appropriate fiscal stimulus and policies”.

Reuters