New Delhi: Business have pointed to encouraging signs of growth recovery on the back of the resurgent rural economy, but expressed fears about stressed sectors such as aviation, hotels and commercial vehicles, two apex associations said in separate statements on Tuesday.

They also said companies have little appetite for loans due to their inability to service debt amid the Covid-19 crisis.

The Confederation of Indian Industry (CII) said economic uncertainties are hampering industry’s ability to plan for the future, while the Associated Chambers of Commerce and Industry of India (Assocham) said companies are hesitant to take credit risk in these circumstances.

Assocham secretary general Deepak Sood said the main issue today is capability to service debt rather than availability of loans. “With a large number of industries still operating at less than half the capacity, leveraging their balance sheets further would be counter-productive,” he said.

Reeling under debt-ridden balance sheets and economic uncertainties in the face of the Covid-19 crisis, Indian industry is left with little appetite for any more loans, with the result that most bank deposits are either parked with the Reserve Bank of India (RBI) or used by the central bank to fund ever-increasing government borrowings, Assocham said in a statement.

Barring a few sectors, most others witnessed de-growth in credit deployment. Construction witnessed 3.7% contraction, while other sectors such as gems and jewellery (-3.7%) and leather and leather products (-4.4%) too were hit, it added.

“Even after meeting the increased requirements of the government borrowings, the system is flush with liquidity with virtually no takers,” Sood said. The RBI Monetary Policy Committee should brainstorm on this difficult situation when it meets for the credit policy review, scheduled next month, he said, adding he expected a one-time loan restructuring.

In a virtual conference between RBI governor Shaltikanta Das and CII members on Monday, HDFC chairman Deepak Parekh and Kotak Mahindra Bank vice chairman Uday Kotak had proposed a one-time loan restructuring scheme to ease stress on businesses and lenders because of disruptions due to the pandemic. Das said the suggestion was noted.

A one-time restructuring permits lenders to extend loan tenures or change payment terms to save the account from becoming a non-performing asset (NPA). The central bank is, however, opposed to the idea because in the past, loan restructuring led to ever-greening of loans rather than recognising them as bad loans.

CII director general Chandrajit Banerjee said there are early signs of recovery, but it is critical to build on these by “deploying all the policy levers”.

He said there are “promising signs”, pointing to a “V-shaped recovery” in the immediate aftermath of the lockdown.

“In order to nurture the nascent signs of recovery, it is important to mitigate the uncertainties that are currently prevailing regarding the restrictions. Corporates are unable to plan beyond a horizon of a few weeks, affecting all operations,” he added.

Banerjee said business activities “must be allowed to function, by removing the uncertainties associated with imposing ‘mini lockdowns’”. Although it is not possible to predict the course of the pandemic, a dashboard approach, triggering predictable responses based on the progression of infections, can reduce uncertainty and boost consumer and industry confidence, he added.

“It is pertinent to note that the recession staring at us in the current year is different from the previous recorded episodes of recession which were all triggered by a monsoon failure,” he said. This year, the agricultural sector has emerged as the beacon of hope for India’s economy, he added.

“Apart from normal monsoon and healthy sowing, a slew of government schemes in the form of livelihood interventions, such as expanding the MNREGA [Mahatama Gandhi National Rural Employment Guarantee Act] programme and the Pradhan Mantri Garib Kalyan Rozgar Abhiyan, have supported the rural economy considerably. This has raised hopes of a rebooting of the economy by the rural sector,” Banerjee said.