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Presenting the Economic Survey on Friday (January 31, 2025), Chief Economic Adviser V. Anantha Nageswaran, among other things, put forth a case for deregulation. According to him, “pervasive” deregulation would not only facilitate ease of doing business but also enable conditions for employment generation. He emphasised this an imperative, among other things, as a means to “raise our game in a new level playing field when globalisation is no longer going to provide the tailwind”. 

Separately, the CEA emphasised about the role of private sector in nation-building and addressed concerns about the adoption of artificial intelligence (AI) urging companies weigh social costs as well.  

Deregulation makes it easier for small, medium enterprises to grow  

According to Mr. Nageswaran, deregulation at the local and state government level would not only be a boost to medium and small enterprises (MSMEs) but would also help lift manufacturing and facilitate GDP growth in the country.  

The Chief Economic Advisor noted certain regulations affect small businesses “disproportionately”. He elaborated that adherence to certain operational restrictions raises the fixed cost of doing business, in turn, disincentivising more hiring. “These (regulations) affect the day-to-day activities of businesses that do not have the kind of bandwidth which large enterprises have – whether it is in land, building and construction, utilities, logistics and sector-specific areas”.  

Mr. Nageswaran articulated deregulation entailed removing the fear of growth in micro, small and medium enterprises. “It is about plumbing the nuts and bolts of deregulation, which are primarily there in the state and local government space,” he stated, adding, “We must continue to augment internal capacities for growth, particularly agriculture sector which has the potential to contribute to 1% of GDP.”  

Salary growth helps build aggregate demand 

Reflecting the importance of private sector in nation building, the Chief Economic Advisor, among other things, argued for balanced deployment of capital and labour, fairer distribution of incomes and according importance to workplace culture, safety and mental health.  

The CEA in his address pointed to an observed “huge disparity” between the growth of profitability among companies to their employment expenses in recent months. Arguing a case for private sector’s role in “raising the game for a new level playing field”, he pointed to automobile magnate Henry Ford’s reasoning to raise the minimum wages of workers to ensure people can buy their cars. The CEA explained, “In some sense, raising wage and salary growth for workers is also a source of building aggregate demand for businesses in the medium run as well…It is in enlightened self-interest rather than just being seen from a moral prism.”  

Private sectors need to weight benefits of AI with social costs 

The CEA contended that deployment of artificial intelligence presents both opportunities and challenges. “Sometimes we all feel that technology eventually generates more jobs. That is true, but the key word here is ‘eventually’,” he explained, adding, “What happens between now and then is critical, and this is where I think, we need to create supporting institutions, enabling institutions to train people, prepare them (for the AI advent) alongside a change in academic curriculums and workplace practices.” 

Reflecting from technological transitions of the past, he held the private sector must weigh the benefits of artificial intelligence against social costs. “They may be subterranean in nature and surface over a longer period, eventually affecting the environment that is necessary for running business smoothly.”  

Growth outlook between 6.3-6.8% for FY 2026 

Mr. Nageswaran in the Economic Survey pegged the growth outlook for FY 2026 between 6.3% to 6.8%. He stated the risk factor emanated not only from global conditions but stock markets being volatile lately. “That is a factor we need to keep in mind because the massive growth in retail participation in the stock market may be a good thing but when the market corrects, it has implications on spending intentions and affects sentiments – which could be significant”.  

Ground reality: Mr. Subramanian said unless GST rates are raised on some items, revenue growth will be a challenge. File picture
| Photo Credit: M. Vedhan

Former Chief Economic Adviser (CEA) Arvind Subramanian, who authored an official report on the ideal 15.5% revenue-neutral rate for the Goods and Services Tax (GST) regime, said he is not very hopeful of a simplification of the complex, multiple-rate structure of the indirect tax, and lamented that the GST era has unleashed a fresh reign of “tax terrorism” across the country.

“We don’t just need rationalization, which we do need, but we need an increase in the rate. We brought the rate down from 15.5% to 11% but the GST Council has become a Council that only discusses rate cuts. It has become a rate cutting committee and an exemption granting committee, and part of it is because of the of the compensation [to States] that happened, they became very lax but that phase is over,” he noted on Friday (November 29, 2024).

Speaking at a session on ‘The GST Story: Whither Next?’, hosted by the Centre for Policy Research, Mr. Subramanian said unless tax rates are raised on some items, revenue growth will be a challenge.

“We thought the advantage of the GST Council is that, because if States were handling this on their own, if they raise rates, they would face political costs. In the GST Council, you can always blame the GST Council for raising rates, and that political economy dynamic hasn’t worked out. And I am very despondent,” he remarked.

Citing people’s experiences with the GST regime, Mr. Subramanian said something about the GST has encouraged excessive tax demands. “In the Indian system, tax terrorism and excessive demand was always a feature, but under the GST, it seems to have gone up. I don’t understand this fully, but I think because the GST gives more data, people think that governments think that they have greater legitimacy, because somehow they have more data and they say, ‘Oh, there’s more evasion’.”

This ‘tax terrorism’ that the GST has introduced is something that ‘we really have to focus on’, the former CEA cautioned.

New Delhi:

Chief Economic Adviser V Anantha Nageswaran on Friday said inclusion of Indian government bonds into JPMorgan’s benchmark emerging market index from next year will widen investor base, and may lead to appreciation of rupee.

He also said there is potential for currency appreciation following inclusion of Indian bonds in JPMorgan index.

Global financial firm JPMorgan has said that it plans to include Indian government bonds or government securities (G-Secs) into its benchmark emerging market index from June, 2024, a move that will bring down borrowing cost for the government.

The inclusion of G-Secs will be staggered over a 10-month period from June 28, 2024 to March 31, 2025, indicating one per cent increment on its index weight.

“Obviously, the investor base for Indian government bonds widens and it will also in a way, relieve the Indian financial institutions from having to be one of the biggest buyers or subscribers of government bonds and they can actually then lend that money for more productive purposes to private sector, the commercial sector individuals etc,” Mr Nageswaran said.

He said there will be a tendency for the currency to appreciate just as it happened between 2003 and 2008 when capital inflows into India surged.

“There is a demand for investors to buy the Indian government bonds… so in that sense, there is a potential for currency appreciation, when the index inclusion starts to happen or the demand from investors for the Indian government securities starts to rise,” he said.

In her Budget speech for 2020-21, Union Finance Minister Nirmala Sitharaman said, “Certain specified categories of government securities would be opened fully for non-resident investors, apart from being available to domestic investors as well.”

The specified securities, which will be listed on the indices, will not have a lock-in requirement.

This was long pending and there were certain issues including with regard to taxation, which the government has ironed out in the last many months.