BackIf states step up efficiency, economy can grow at 8-8.5%, says Bibek Debroy
Debroy also spoke about the transition India is undergoing in terms of urbanisation, formalisation of the economy, formalisation of the labour force and digitalisation of the economy
PremiumIf states improve their efficiency including in areas like labour and land, India's economy could achieve its potential of growing at about 8-8.5%, said Bibek Debroy, Chairperson of the Economic Advisory Council to the Prime Minister (EAC-PM) at the Mint India Investment Summit 2023 in Mumbai.
Debroy said that while the aspirational growth rate for India would be about 8-8.5%, the economy is expected to expand in the range of about 6.5% over the next two to three years, which could accelerate further to 7% as the impact of the supply side reforms already undertaken kicks in and if one were to be optimistic, the growth could inch upto 7.5%.
Addressing business leaders, Debroy said that in the past when India had seen a 9% economic growth rate adjusted for inflation, exports had done well. Although India's services exports are doing well, it would be unreasonable now to expect net exports to be an important driver of growth at this juncture in view of the global uncertainties. Debroy explained that there is scope for growth rate to accelerate if states do their bit to improve efficiency in the economy.
He said that despite the global uncertainties, there is enough of scope to get 8% growth because what happens to India's aggregate growth is a summation largely of what happens at the state level with the exception of railways, national highways and defence.
"There is a lot of slack in terms of what can be done to improve efficiency of land and labour markets. If many of the states jack up their growth rates, something like 8% is possible. Do not get me wrong, I am not saying that 8% growth this fiscal year. I am just talking about the potential," Debroy said.
Debroy explained that both private investment and consumption tend to get postponed when there is uncertainty and where expectations about inflation are high.
"In the medium term, my guess is, depending on the definition of what medium term is, we are on a trajectory of something like 6.5% real rate of growth," he said. Debroy explained that the reforms undertaken by the government on the supply side will lead to gains in the medium term. He also acknowledged that it is becoming clear in hindsight that India's fiscal response to the pandemic has been good.
"As the supply side reforms kick in, the 6.5% (growth rate) can increase to a real rate of 7% and if you are very very optimistic, even 7.5%. But that is somewhere down the line. For the next two or three years, not this year, I am inclined to think something like 6.5% real growth is something like the right kind of growth to bank on depsite what I said aon aspirational growhth rate of 8-8.5%," Debroy said.
India's economy is expected to grow at 7% in FY23 as per the government's second advance estimates. RBI has projected a 6.4% growth in FY24.
Debroy also spoke about the transition India is undergoing in terms of urbanisation, formalisation of the economy, formalisation of the labour force and digitalisation of the economy. He said that these changes represent work is in progress and that formalisation of enterprise and formalisation of the labour force are desirable as both bring efficiencies and make it easier to target government programmes.
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