 "Profitability vs hiring in India Inc needs a relook, says CEA Nageswaran")
V Anantha Nageswaran, chief economic adviser to the Government of India, in a conversation with Ruchika Chitravanshi in New Delhi, discusses the need for deeper deregulation across all levels of the government and the importance of dispelling fears surrounding the growth of small and medium enterprises. He also spoke about investments from China, India’s potential to develop cost-effective AI solutions, and the role of India Inc in driving demand. Edited excerpts:
One of the themes of the Economic Survey has been deregulation. Do you think states alone have to carry the deregulation burden?
We didn’t single out the state or local or Union government. Already they have been doing many things. There is still action to be taken, both from Union and state government sides. There are, for example, agencies like the Directorate General of Foreign Trade, the Bureau of Indian Standards, and the Food Safety and Standards Authority of India. Much more action at the grassroots which affects small and medium enterprises more directly may probably rest more with the state government than with the Union government. Much has been done, but much remains to be done at all levels of the government. We are trying to focus more on the state government, because the rules and regulations related to land and labour particularly are emanating from there.
By when do you think we can achieve 8 per cent growth?
We can’t put a timeline or a precise date because a lot would depend on factors beyond our control, including the global environment. Globalisation tailwinds for countries like India have probably stopped, and they may be on the way to becoming headwinds. That does have an impact on growth, and we need to compensate for it. By doing these kinds of things, we lift the potential growth rate by removing the fear of growth in small and medium enterprises, make them bring down their cost of operations, and make them hire more. And that is how you compensate for the globalisation phenomenon which has now turned into a headwind, and be able to raise our growth rate. We just have to keep plugging away in terms of doing what we need to do.
The Survey, according to experts, has glossed over urban demand stress. How big is this challenge?
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Two years ago, everybody, maybe including you, was probably talking about the K-shaped recovery with rural India lagging. Now it’s urban India. Rural India is firing on not all but as many good cylinders as possible. One has to have a good idea whether we are dealing with a cyclical or a structural phenomenon. Why do you think that we are not recommending or responding to the urban consumption phenomenon when we speak about deregulation of private sector hiring and compensation practices?
Do you think you have been a bit harsh on India Inc in the Survey?
That is a wrong lens to view it. After Covid, due to certain natural, unavoidable exigencies, certain hiring and compensation practices were adopted that gave flexibility to both workforce and businesses. That probably has become more entrenched. That is why we feel that it’s time to take a re-look at it -- the rate at which profitability has grown, and the rates at which compensation and hiring have grown. And also the manner in which you’re hiring is more and more towards a flexible labour force, which ensures that the cost of labour comes down. I think it has got medium-term implications for the organised sector itself, and that is what we want to highlight.
How do you think India can reduce dependence on China for transition to electric vehicles as highlighted in the Survey?
We have intensified battery technology, battery storage, etc, as part of the production-linked incentive scheme. And the same thing we are working with respect to solar energy. We are taking action by creating domestic capacity on paper, modules, panels, etc, when it comes to solar energy and e-mobility, as well. We can reduce the dependence by focusing more on public than private modes of transportation.
What about your suggestion in the last Survey of increasing investments from China, instead of importing from China? Do you see policy action happening in that direction?
In the past six months after the Survey came out, purely coincidentally, there has been a lot of action. These things will take time to materialise. And there are companies that are producing in China and exporting to India, and even those companies can be part of our strategy of attracting FDI. It takes two to tango. So it’s not as if we open our doors, they would all be waiting to rush in. Geopolitical environment has become difficult, and many countries are discouraging their companies from going and investing elsewhere.
The Survey has talked about two obsessions of the West: Water-guzzling AI and energy transition. The two don't sit well with each other. Do you think India is ready to deploy massive resources into AI?
I don't know whether we need to deploy massive resources, because we have also been able to come up with cost-efficient solutions, such as sending our mission to Mars or to the moon, etc. We do it in our own cost-effective way. And there may be technological innovation that will be happening as we are speaking that may make it far less prohibitive in terms of cost than what the West has been able to do so far.
The last monthly economic report by the finance ministry had said that monetary policy stance may have led to demand slowdown in H1FY25. Does that mean that the economy will not recover without a significant policy cut?
There is a combination of many things: Monetary policy and the macro prudential action, the election-related slowdown in capital expenditure, and the monsoon rainfall in August-September leading to lower footfall in some areas. So a lot of things may have played their part. But the second half will, in any case, be faster than the first half.
The government had come out with a public sector policy to stay in core areas but not in non-core areas. How do you see that in connection with your call for structural reforms?
That is a policy choice of the government, made depending on circumstances. But one of the views is that the government has been able to improve efficiency and therefore, public sector stocks have done very well. Profitability has done very well. The government is making them more financially viable and efficient, and therefore ownership doesn’t necessarily matter. Performance matters. Deregulation, regardless of ownership, is something that the economy can do with and especially for small and medium enterprises, in terms of removing the fear of growth.