Deregulation will lead to more employment: CEA Anantha Nageswaran

In the backdrop of an increasingly unstable global order, the CEA explains how India could safeguard its interests, in an interaction with Business Today, conducted a day before the Budget. Edited excerpts:

The big message resonating from the Survey was the call for deregulation in India.

We had flagged it already in the Survey that we brought out in July 2024. This Survey takes it to the next level by exploring specific dimensions in different sectors.

We are not following the global template or global debate, we are simply talking about what is necessary for India, which is something that we have flagged even earlier. Which specific actions will follow because of this is of course, not just up to the Union government alone, but as the Survey makes it clear, much of the action must be in the domain of state governments as well.

But nonetheless, I think the actions that need to follow rest with the government agencies across the country. It will be difficult for me to speculate on how these actions will happen and who will take the lead, because some states are already doing that.

The Union government has done a lot in the last 10 years on the issue of ease of doing business. They came up with the Jan Vishwas Act 1.0. There is a lot of talk about the next Jan Vishwas scheme as well. It is an ongoing exercise in many states.

Some states are more advanced than others, but the Survey wants to spur some action in areas where there is potential for economic activity to respond more than in some other areas.

We also want to catalyse the discussion in that direction.

There is also a significant mention about 8% growth rate that is required for ‘Viksit Bharat’. With whatever the states and Centre may choose to do about deregulation, is there any correlation that can be drawn between deregulation and the prospects for faster and speedier economic growth?

Some of it is intuitive and empirical studies across the world are not there.

Particularly speaking, however, in the case of India, and we present that in Chapter 7 on the topic of industries, that those states which were very active in the Business Reform Action Plan (BRAP) initiative of the Union government, saw their industrial activity do much better than those states that lag behind in BRAP.

That is a very clear indicator that it works, to boost industrial activity in the states.

Would it be fair to say that while the Survey says India is on a steady track, it is the external environment that we perhaps need to respond to far more effectively for future growth?

No. We cannot really be controlling what happens in the external environment and to some extent, we take the external environment as given.

Yes, foreign policy, diplomacy, security policies, can shape it to some extent. But as far as macroeconomics is concerned, in the Survey, we have taken the external environment as given. And therefore, we make the case that we need to double down on domestic growth drivers.

What is the impact of friendshoring, and global trade restrictions led by the United States, that a developing economy like India may have to face?

I do not want to comment on a specific country’s action. That would be speculative.

In the Survey we have pointed out that in general, without referring to any country, it is a global phenomenon. Trade restrictions have increased in the past several years, much more than they used to in the years before that. And the same thing goes for trade-related and investment-related restrictions, and it is global.

And therefore, we are saying that external growth and external investments both must be taken as something that is going to be in smaller magnitude than in the past, and therefore, there is a need to boost domestic savings, domestic income generation, as well as domestic production.

And one of the answers to that is deregulation, because that will boost the investment efficiency, and that will also lead to employment generation. In both ways, the deregulation aspect takes care of the external environment.

In terms of the outlook for inflation, I wonder whether the external factors will be a more critical factor than what could happen domestically, especially on account of weather vagaries.

No, I think so far in the last two-three years, we have not seen that.

There was an uptick in the oil price, which came down quickly, and since then it has not been a big factor, and now there is a lot of talk around the world about ramping up production of fossil fuels.

Whether the external environment is going to affect the inflation dynamics in the domestic economy, I would say that at this point in time the chances are remote. But yes, climate change can have an impact on food production, and it can make it more volatile. But that is again something which the government has responded to in the Budget in July 2024 by releasing so many climate-resistant seed varieties, etc., investing in food chain storages, facilities, and capacity creation. And more importantly, I think inflation developments can also be addressed by raising productivity level in the industrial sector, which again deregulation and boosting investment efficiency will take care.

There is an interesting chapter on Artificial Intelligence in the Economic Survey. And there have been some concerns around recent developments that India is slipping behind. Your own assessment in terms of the challenge and opportunity that AI provides for our economy.

A lot of exciting developments happen in the technology front, but its impact in real terms on productivity, output in different sectors and on employment are still at an early stage. It is difficult to get, more precise than what we have done in this chapter.

The important thing is to make sure that development happens on the technology front, because we must be competitive, we must keep up with what is happening elsewhere in the world.

At the same time, we also have a much larger population than many other countries and a much higher need to generate eight million jobs a year on average. And therefore, we have additional challenges that many other smaller countries do not face.

And that is the consciousness, that is the realisation that we wanted to bring about.