India must double down on domestic growth to sustain momentum amid global uncertainty: CEA

Chief Economic Advisor V Anantha Nageswaran

Underscoring the importance of bolstering efforts at domestic level, Chief Economic Advisor (CEA) V Anantha Nageswaran on December 12 said that India must prioritise wage hike and innovation, and focus on quality to maintain its economic growth momentum as uncertainties at a global level continue to endure.

“There has been a spike in global uncertainty but it's not temporary. These are enduring challenges which will dictate the trend of growth. We have to double down more on domestic efforts. Innovation and focus on quality, wage growth need to be given more importance,” he said.

He stressed on the growing importance of the private sector in the economic growth of the country. “Private sector is also starting to deploy its capital, and that will continue. Capital formation as a share of GDP is likely to be 35 percent in five years from the current 30.8 percent,” he said at the Global Economic Policy Forum 2024, organised by the Ministry of Finance and the Confederation of Indian Industry (CII).

India’s GDP growth dipped to 5.4 percent in the second quarter. The decline can attributed to several factors, some of which may be temporary. The CEA expressed confidence in the broader trajectory. “We are on track to reach 6.5-7 percent GDP growth in FY25,” he said.

Balancing Economic Aspirations and Climate Commitments

The CEA highlighted the challenges posed by global emission mitigation goals, especially for developing countries. “The agenda of emission mitigation is a huge overhang on developing countries in terms of balancing economic aspirations and climate change management,” he noted.

Nageswaran called for a careful approach to renewable energy transition, but warning against undermining the economic competitiveness. “Without growth, there are no resources to invest in climate change management,” he said, drawing parallels with the EU’s rising energy costs due to renewable energy transitions.

Policy Focus Areas for Medium-Term Growth

Nageswaran outlined the key policy priorities to sustain medium-term growth.

Employment Generation: “We estimate that 8 million jobs need to be created every year for the next 10-12 years with minimum wages. This can happen by micro enterprises becoming small, small enterprises becoming medium, and medium enterprises becoming large,” he said, advocating for deregulation and threshold-based concessions linked to economic activity, rather than absolute terms.

Strengthening MSMEs: The CEA called for reforms to unlock growth potential in the MSME sector. “Our support policy for MSMEs over the years has kept them small, robbing them of incentives and mindsets to grow. We should remove the fear of growth from MSMEs,” he said.

Agricultural Resilience and Productivity: He stressed the need to make agriculture productive and resilient, promoting crop diversification beyond cereals and ensuring water security through retailored incentives. “Agriculture can be a source of exports,” he said.

Energy Security and R&D: The CEA reiterated the importance of making Made in India synonymous with R&D and quality consciousness. “Drivers that will sustain growth towards a Viksit Bharat include innovation and focus on quality,” he said.

India’s per capita income has grown more than sevenfold since 1990, and it is expected to increase from around Rs 2 lakh in FY23 to Rs 14.9 lakh in FY47. “With 6-6.5 percent GDP growth for the next 10 years, along with exports, we will achieve the targeted per capita income,” Nageswaran said.