Bottlenecks need to be cleared to woo private investments:CEA

Acknowledging that private investment is stifled in India due to "lots of regulations" and also scarcity of coal and electricity, new Chief Economic Adviser Arvind Subramanian has said that removing these bottlenecks will be key to kick start growth in the country.

"The Indian economy needs a couple of big things, better governance, a stronger state delivering security of contract, protecting property rights, providing infrastructure," Subramanian said in a podcast interview to IMF.

"You need a bigger role for the private sector, means getting rid of the lots of regulations that stifled the private sector, that stifled employment creation, that stifled the ability of the private sector to grow, to become big. These are the kind of broad twin challenges that India faces," said the former IMF economist, who was appointed Chief Economic Advisor in the Finance Ministry on October 16.

Responding to a question, Subramanian said "a lot of projects are stalled, because there is not enough power, there is not enough coal, or the companies are over indebted."

"So clearing these bottlenecks is going to be the biggest kick start to private investment and growth," he said. Bureaucrats were not taking some crucial decisions fearing that they would be sued in courts, he said.

"So I think, just creating the conditions for more expeditious decision making and then you need to get the infrastructure going again, making power and coal and addressing those would be a big priority," he said.

Subramanian said a five per cent growth rate is "remotely not enough" for India to grow and provide the jobs for the expanding labour force.

"Growth would have to be brought back to seven-and-a-half and eight per cent consistently for about 10, 15, 20 years, if India is to really address all these challenges," he said.

The Chief Economic Advisor said, "As reforms were lagging, inflation was very high and growth decelerating for many consecutive quarters and there seemed to be a kind of government paralysis, there was a sense in 2012 of India lagging behind."

"But it is clear there that there is a real optimism, because there is a sense that the new government can remedy some of those problems. Stock markets have risen tremendously; foreign capital has come pouring in and initial steps have been taken that kind of validate all that optimism," he said.

"But that is just a start. A lot more needs to be done," he said, adding that the Narendra Modi Government is trying to replicate the "Gujarat model" all over India of good governance and attracting private sector.

He emphasised that there are a set of macro challenges that needs to be addressed to bring down inflation further and to get the fiscal deficit down.

At the same time there is a need to provide the conditions for greater infrastructure and create conditions for the private sector to start coming back again, he said.

Oxford-educated Subramanian, who was economist with the International Monetary Fund (IMF) like his predecessor Raghuram Rajan, said private sector investment needs to rise again if India has to achieve eight per cent growth rate.