Modi's Chief Economic Advisor Nageswaran says ‘low hanging fruit’ key to 8% growth in India

By Ruchi Bhatia

India’s state governments should implement labor, land and other reforms that are “low hanging fruits” to help sustain the nation’s economic growth nearer 8 per cent, a top economic official said.

An “urgent priority” is for labor rules to take effect, India’s Chief Economic Adviser V Anantha Nageswaran said in an interview on Thursday. The policies have been passed at the national level, and need to be implemented at the state level, he said.

Some have misinterpreted the labor codes as making it easier for businesses to fire workers, he said, but the rules are “actually meant as an inducement or incentive for them to hire without the fear of deadweight costs.”

Prime Minister Narendra Modi’s government is luring manufacturing to the country with heavy incentives, such as tax cuts, rebates and capital support. But complex labor laws, access to land and bureaucratic delays remain some of the key challenges for investors.

India’s “optimal” growth is 7 per cent, but a “desirable” pace is 8 per cent, Nageswaran said. Reaching that goal won’t be easy, he said, but “there are quite a few low hanging fruits in terms of internal reforms” that can be implemented, especially at the state level.

Modi is widely expected to extend his grip on power for a third term with elections due in the summer. His administration is likely to focus on developing supply chains and creating more jobs.

Nageswaran also made the case for an overhaul of electricity-distribution companies and land use. In 2015, Modi’s government stepped back from a law to make it easier for companies to acquire land, following widespread opposition from farmers. His attempts to revamp the power sector have helped narrow losses at utilities, but most retailers have yet to turn profitable.

Making the power-distribution companies “viable” is crucial for investment in energy transition, he said. “Those are the areas that can definitely still take India from 7 per cent to 8 per cent growth,” he said.

The International Monetary Fund in October projected India’s growth at less than 6.5 per cent for the coming five years.

Bankruptcy, Taxes

Nageswaran also argued for a review of the bankruptcy code and the goods and services tax. Businesses have been calling for a simplification of the complex tax structure and multiple rates under the GST.

A former chief investment officer for the Asia Pacific region at Julius Baer Group Ltd, Nageswaran was appointed to his current post in 2022. He was previously a part-time member of Modi’s Economic Advisory Council from 2019 to 2021.

On the push for clean energy, Nageswaran said India’s economic needs mean energy security was a more important objective than emission control.

India is the world’s third-largest carbon emitter and is aiming to reach net zero by 2070. While the nation is working toward meeting its clean-energy targets, it hasn’t provided a timetable for peaking its carbon emissions in the near term.