Lowering the cost of business through deregulation will make a significant contribution to accelerating economic growth and employment amidst unprecedented global challenges.
It has been over six months since the last Economic Survey, and as you read this preface, you will notice that the world is evolving rapidly. While this pace of change is not unusual in the broader historical context, the current global landscape presents unique challenges and opportunities.
Global Context
2024 was a year of elections, with three major democracies—India, America, and Indonesia—going to the polls. India returned its incumbent government for a third term, Indonesia saw a change in leadership within the ruling party, and America witnessed a change in presidency. These shifts have already hinted at policy changes affecting global trade and labor mobility.
Europe faces both political and economic uncertainties. Germany, Europe’s largest economy, experienced economic contraction for two consecutive years. Political uncertainty looms in France due to snap elections, while the UK saw a change in government with the Labour Party taking office amidst fiscal pressures and a slowing economy. Europe’s competitiveness is under strain due to high energy costs, partly driven by the transition to renewable energy.
China’s post-Covid reopening has not spurred significant economic growth, as overcapacity and financial strains in the real estate sector have emerged. Weak aggregate demand has pushed the economy into deflation, and without substantial policy stimulus, excess capacity is spilling into external markets, leading to a record trade surplus of nearly $1 trillion in 2024.
Emerging markets face currency volatility due to the strength of the US dollar and shifts in Federal Reserve policy. Fiscal strains and low real interest rates have eroded the value of some currencies, while borrowing costs for sovereigns are rising as financial markets reassess inflation and fiscal prudence.
Stock markets worldwide remain elevated, seemingly unconcerned about economic growth and earnings uncertainties. However, risks related to securitization, leveraged loans, and private credit are re-emerging, with US stock market valuations reaching extreme levels.
Mario Draghi’s report, *The Future of European Competitiveness*, highlights the fading era of rapid global trade growth, which poses challenges for India’s export-driven growth. Historically, India’s export growth has been closely tied to global trade trends, making domestic growth levers increasingly important.
India’s Challenges and Opportunities
India faces the “China Challenge” in manufacturing, with limitations in producing critical goods at the required scale and quality. For instance, India’s solar energy sector relies heavily on Chinese supply chains for key components like polysilicon, ingots, and wafers. This dependence exposes India to supply chain disruptions, price fluctuations, and currency risks.
To address these challenges, India must attract and facilitate domestic and foreign investments to build a competitive and innovative economy. Strengthening domestic supply chains and diversifying sources of supply are critical. Additionally, India must navigate the energy transition carefully, balancing energy security, affordability, and sustainability. Electric mobility, for example, offers economic benefits but requires indigenization of technology and raw materials to reduce import dependence.
Policy Priorities
1. Deregulation and Ease of Doing Business: States that score high on “Ease of Doing Business” parameters tend to have higher industrial activity. Deregulation can boost capital formation, employment, and output growth.
2. Climate Change and Energy Transition: India must forge its own path to energy transition, focusing on energy security and affordability. Public transportation should be prioritized over private vehicles to ensure efficient energy use.
3. Skilling and Education: India’s youth must be equipped with skills in emerging technologies like Artificial Intelligence (AI) to stay ahead of technological advancements and minimize adverse employment impacts.
4. Agricultural Productivity: The agriculture sector needs diversification away from water-dependent crops, increased irrigation cover, and enhanced agricultural research.
5. Health and Nutrition: Stringent regulations on ultra-processed foods are necessary to safeguard public health, particularly for children and youth.
Philosophical Approach to Governance
Governments must “get out of the way” and allow businesses to focus on their core missions. This means rolling back excessive regulations, adopting risk-based approaches, and shifting from a “guilty until proven innocent” mindset to “innocent until proven guilty.” Simplifying compliance requirements and fostering trust between government and businesses are essential for innovation and competitiveness.
Conclusion
The Indian economy is on a steady growth path, with strong balance sheets in the corporate and financial sectors. However, the retreat of globalization necessitates a focus on domestic growth levers. Deregulation, skilling, and strategic investments in energy and technology will be critical to sustaining growth and achieving Viksit Bharat by 2047.
This Economic Survey underscores the importance of simplifying regulations, fostering innovation, and addressing structural challenges to ensure long-term resilience and competitiveness.
V. Anantha Nageswaran, Chief Economic Advisor ,Government of India.
