India’s chief economic adviser calls for deregulation to spur growth
- Achieving our employment and manufacturing goals, as well as boosting capital formation and investment, requires a stronger emphasis on deregulation, particularly at the state and local government levels, said chief economic adviser V. Anantha Nageswaran.
New Delhi: India’s chief economic adviser V. Anantha Nageswaran emphasised the need for several measures including deregulation and a focus on key structural reforms after the country’s economic growth slowed for a second consecutive quarter.
Nageswaran attributed the slowdown in India’s GDP growth during the second quarter to a combination of global factors, including excess manufacturing capacity in other regions and import dumping in India.
While the GDP growth figures may have been somewhat disappointing, the circumstances present a valuable opportunity to focus on key structural reforms, he said.
“It is a good moment to reassess not only hiring and compensation practices in the private sector but also to double down on deregulation,” he said. “Additionally, this is an ideal time to strengthen state capacity for public investment, shifting focus from revenue expenditure to long-term growth-enhancing initiatives.”
Nageswaran added that while underlying structural factors on the domestic front contributed to the slowdown, it was important to consider the role of special factors. “Urban demand slowdown could have been influenced by factors like reduced footfalls due to monsoon activity and the observance of religious events.”
Addressing a press conference after the release of the GDP data for second quarter, Nageswaran said geopolitical risks, particularly surrounding the US presidential election, intensified during the quarter, further contributing to economic uncertainties.
These global and geopolitical factors certainly amplified the growth slowdown, Nageswaran said.
“In India, it is evident in the divergence between rising steel consumption and stagnant steel production,” he said, highlighting the challenges faced by the domestic manufacturing sector.
He added that higher growth could be expected in the second half of the current financial year.
India’s economic growth slowed by 270 basis points year-on-year to 5.4% in the second quarter of FY25 (July-September), slightly below the 6.5% forecasted by a Mint poll of economists.
The slowdown was primarily driven by a contraction in manufacturing and weaker private consumption.
Sequentially, GDP growth eased by 130 basis points from 6.7% in the April-June quarter, according to data released by the Ministry of Statistics & Programme Implementation (MoSPI) on Friday.
Despite this, India continues to be one of the fastest-growing major economies, with the finance ministry’s latest economic review projecting a rebound in the second half of the fiscal year fueled by stronger rural demand following a good monsoon and harvest, along with increased government spending.
Reinvigorating growth
Nageswaran also emphasized the need to address the barriers hindering capital formation.
“There are certainly impediments that need to be examined,” he said. “Some of this could be attributed to excessive rainfall in the second quarter and uncertainties surrounding the election season. However, there is significant potential for capital expenditure to ramp up in the remaining three to four months of the year.”
During Q2, FY25, gross value added (GVA), which measures the total value of goods and services produced in an economy, grew 5.6%, down from 7.7% in the same period of the previous year. GVA growth had stood at 6.8% in the first quarter.
Meanwhile, the gross fixed capital formation (GFCF), which indicates new value-added and investments in the economy, grew at 5.4% annually in Q2, down from 11.6% in the corresponding year-ago period and 7.5% in Q1, indicating a slowdown in investments.
Nageswaran said even developed countries are increasingly focusing on deregulation as a key strategy to reinvigorate growth.
“If we are to achieve our employment and manufacturing aspirations, and consequently boost capital formation and investment, we must double down on deregulation, especially at the state and local government levels,” he said. “This approach will help shift both the trend and actual growth rates, potentially raising them from 6.5% towards 7% and beyond.”
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Business NewsEconomyIndia’s chief economic adviser calls for deregulation to spur growth
First Published:29 Nov 2024, 09:02 PM IST
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