Chief Economic Adviser Ananth Nageshwaran has pitched for a larger role for the private sector, driven by increased deregulation, in his strategy to improve domestic economic growth, as laid out in the Economic Survey.
The real GDP is expected to grow at a pace of 6.4% in 2024-25 and the annual growth rate needs to be at 8% for at least a decade to increase private investment, the CEA said, in the Survey. “Achieving this growth will require an increase in the investment rate to around 35% of GDP from the current level of around 31%. It is deemed desirable, in general, for the investment rate to rise so that a higher GDP growth rate is achieved,” he said.
Acknowledging the challenge of increasing the actual rate of investment due to “capital constraints”, the CEA said that the efficiency of investment can be boosted instead; it is here that slashing government control over businesses can come in handy. He added that easing rules and regulations could increase the economic freedom of small industries, by reducing the costs of compliance. While admitting that his pitch for deregulation is not as big as those in the liberalisation period, he said that his proposals would change rules at the State and local level that could help with “time and the resource bandwidth”, thus creating a butterfly effect on innovation, entreprenuership, and even employment generation.
Creating space for business
The Survey listed the areas in which regulations could be eased, including local body laws demarcating land use, citizen accountability, land ceiling fire safety, and floor area indices. He suggested freeing up urban spaces that are constrained by floor area regulations, to accommodate more businesses.
“This could reduce fixed costs for small businesses which could induce increased hiring. Floor area ratio restrictions, parking regulations take away much of the land available at the ground floor level for businesses so actually manufacturing can start only from the first floor onwards in many small enterprises both in urban and rural India if they fully comply with the letter and spirit of these regulations. Naturally, that raises the fixed cost of doing business and naturally, it also disincentivizes more hiring,” Mr. Nageshwaran said in his media briefing, emphasising that deregulation can spur employment generation.
‘Relax labour laws’
He pitched for easing labour codes like unionisation laws, shop laws, and rules governing contract labour, calling for more flexible work hours administered for a longer period of time rather than weekly compliance. He also suggested a demarcation of work hours based on the order flows of firms, which he said could be negotiated between workers and employers. While pushing for deregulation, the CEA also underlined changes in the qualitative aspects of doing business. In the Survey, he cited studies that underline the importance of a healthy work place for worker productivity.
Mr. Nageshwaran recommended deregulation in agricultural marketing and pollution control and the relaxation of rules on food safety, excise, and legal metrology. He also pushed for cheaper electricity tariffs for industries. The Survey said that these sector-specific suggestions were merely illustrative, arguing that incremental liberalisation of laws would be easier once the first stage of deregulation is set in motion. “These are areas we don’t have to micromanage,” the CEA said in his briefing.
State successes
The Survey also reported that existing deregulation at the State level has already yielded results, offering examples from Andhra Pradesh, Karnataka, and Haryana, which deregulated worker laws to allow night shifts for women in information technology firms. Tamil Nadu and Haryana have changed building codes 12 times in the past year, while Punjab liberalised labour, building, and fire safety codes.
In addition to deregulation, the CEA also proposed the importance of public-private partnership-led capital expenditure in infrastructure growth. Highlighting the work done in this area, he admitted that such investment has not yet been induced in some core sectors. “The efforts of the Union Government would need to be supplemented with wholehearted acceptance of the need for public-private partnerships in infrastructure across the country,” the Survey said.
By highlighting deregulation as a major ingredient to deliver domestic growth and infrastructure investment, the Economic Survey has set the tone for the Union Budget 2025-26 to be presented on Saturday, industry experts said.
Published – January 31, 2025 02:59 pm IST
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