Chief Economic Adviser Ananth Nageshwaran has pitched for a larger role for the private sector. File
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Chief Economic Adviser Ananth Nageshwaran has pitched for a larger role for the private sector, driven by increased deregulation, in his strategy to improve domestic economic growth, as laid out in the Economic Survey.

The real GDP is expected to grow at a pace of 6.4% in 2024-25 and the annual growth rate needs to be at 8% for at least a decade to increase private investment, the CEA said, in the Survey. “Achieving this growth will require an increase in the investment rate to around 35% of GDP from the current level of around 31%. It is deemed desirable, in general, for the investment rate to rise so that a higher GDP growth rate is achieved,” he said.

Acknowledging the challenge of increasing the actual rate of investment due to “capital constraints”, the CEA said that the efficiency of investment can be boosted instead; it is here that slashing government control over businesses can come in handy. He added that easing rules and regulations could increase the economic freedom of small industries, by reducing the costs of compliance. While admitting that his pitch for deregulation is not as big as those in the liberalisation period, he said that his proposals would change rules at the State and local level that could help with “time and the resource bandwidth”, thus creating a butterfly effect on innovation, entreprenuership, and even employment generation.

Creating space for business

The Survey listed the areas in which regulations could be eased, including local body laws demarcating land use, citizen accountability, land ceiling fire safety, and floor area indices. He suggested freeing up urban spaces that are constrained by floor area regulations, to accommodate more businesses. 

“This could reduce fixed costs for small businesses which could induce increased hiring. Floor area ratio restrictions, parking regulations take away much of the land available at the ground floor level for businesses so actually manufacturing can start only from the first floor onwards in many small enterprises both in urban and rural India if they fully comply with the letter and spirit of these regulations. Naturally, that raises the fixed cost of doing business and naturally, it also disincentivizes more hiring,” Mr. Nageshwaran said in his media briefing, emphasising that deregulation can spur employment generation.

‘Relax labour laws’

He pitched for easing labour codes like unionisation laws, shop laws, and rules governing contract labour, calling for more flexible work hours administered for a longer period of time rather than weekly compliance. He also suggested a demarcation of work hours based on the order flows of firms, which he said could be negotiated between workers and employers. While pushing for deregulation, the CEA also underlined changes in the qualitative aspects of doing business. In the Survey, he cited studies that underline the importance of a healthy work place for worker productivity.

Mr. Nageshwaran recommended deregulation in agricultural marketing and pollution control and the relaxation of rules on food safety, excise, and legal metrology. He also pushed for cheaper electricity tariffs for industries. The Survey said that these sector-specific suggestions were merely illustrative, arguing that incremental liberalisation of laws would be easier once the first stage of deregulation is set in motion. “These are areas we don’t have to micromanage,” the CEA said in his briefing.

State successes

The Survey also reported that existing deregulation at the State level has already yielded results, offering examples from Andhra Pradesh, Karnataka, and Haryana, which deregulated worker laws to allow night shifts for women in information technology firms. Tamil Nadu and Haryana have changed building codes 12 times in the past year, while Punjab liberalised labour, building, and fire safety codes.

In addition to deregulation, the CEA also proposed the importance of public-private partnership-led capital expenditure in infrastructure growth. Highlighting the work done in this area, he admitted that such investment has not yet been induced in some core sectors. “The efforts of the Union Government would need to be supplemented with wholehearted acceptance of the need for public-private partnerships in infrastructure across the country,” the Survey said.

By highlighting deregulation as a major ingredient to deliver domestic growth and infrastructure investment, the Economic Survey has set the tone for the Union Budget 2025-26 to be presented on Saturday, industry experts said.

National missions for pulses and oilseeds are to be strengthened
| Photo Credit: The Hindu

There was a lot of anticipation before this Budget. As the first major public policy announcement of the new government, it was expected that the Budget would lay down a plan of action for the following five years of the government’s approach towards the larger national vision of Viksit Bharat@2047. Further, while the economy is performing well, there were admittedly a few areas that merited attention, employment being the foremost.

The Finance Minister announced that the Budget would focus on employment, skilling, MSMEs, and the middle class. With the nine priority areas that followed, she articulated the economic policy framework through which the government wishes to bring in the transformation that would accelerate the journey towards Viksit Bharat@2047. By addressing the near-term challenges while keeping an eye on the long term, the government has ensured that this Budget is growth-oriented, inclusive, and will create opportunities for all sections.

Areas of focus

The first is the focus on agriculture. The world over, the impact of climate change is seen the most in the farm sector. With rise in inflation of agri-products being linked to adverse climate events, it was pertinent that India double up efforts on developing climate-resilient seed varieties. The Budget brings in this focus with a comprehensive review of agri-research set up in the country to increase productivity and introduce climate-resilient seed varieties. Additionally, national missions for pulses and oilseeds will be strengthened and greater impetus would be given to set up large-scale clusters for vegetable production near major consumption centres. These steps would help in building self-reliance, bring in stability in the incomes of farmers, and also benefit consumers by arresting the occasional price spikes due to import dependence and fragmented supply chains domestically.

The second is the priority accorded to employment and skilling. The government has announced a comprehensive package of three schemes that offer employment-linked incentives. These will boost employment generation both in the manufacturing and services sectors and benefit lakhs of youth.

Additionally, the initiative to set up many more working women hostels in the country and creches for care support in partnership with the private sector will facilitate greater participation of women in the workforce. An increase in female labour force participation rate can be an additional lever for our country’s growth, and FICCI had suggested strengthening of the care economy ecosystem in the country in its economic agenda for the new government.

The third is the comprehensive set of measures outlined for the MSME sector. Finance is the lifeblood for any industrial unit, and this is more so for the MSMEs. In a national survey that FICCI undertook last year amongst MSMEs, availability of credit on reasonable terms and without collateral were the keys asks. By announcing a new credit guarantee scheme for MSMEs in the manufacturing sector, guiding public sector banks to develop internal assessment models for credit evaluation of MSMEs basis their digital footprints, and having a mechanism in place that would ensure flow of credit to MSMEs even during periods of stress will provide a lot of comfort to MSME units. FICCI is of the view that with these changes, underwriting models will improve and the cost of credit to MSMEs will come down. Another notable inclusion, which is also a FICCI suggestion, was the lowering of annual turnover threshold for registration on TreDS platform from ₹500 crore to ₹250 crore.

The fourth area includes proposals that focus on sustainability. Promotion of small modular reactors for nuclear energy, continuous support to the national roof top solar programme, dedicated projects for water supply, sewage treatment and solid waste management in large cities are all welcome measures. Additionally, the setting up of a Critical Minerals Mission will ensure that we are able to access with certainty these minerals which are important for meeting our sustainability goals.

The fifth is the partnership with state to broaden and deepen factor market reforms. FICCI has ardently advocated the need to work closely with States for ushering in reforms in areas like land, labour, and power. These have a bearing on the overall cost of production in the country and we are encouraged by the government’s indication to pursue the next generation reforms with State governments as partners for promoting overall national development.

Deftness on fiscal side

Finally, the government needs to be congratulated for the deftness displayed on the fiscal side. The downward revision in projected fiscal deficit for 2024-25 to 4.9% from 5.1% announced in the Interim Budget reflects the government’s commitment to fiscal consoli. This will bode well for India’s external ratings.

The Budget has articulated a clear vision and identified priorities which will be the foundation for India’s continued growth and development. The focus must now shift to implementation.

Subhrakant Panda, Immediate Past President, FICCI