New Delhi, Jan 30 (FN Bureau) Indian economy could be in the grip of a structural slowdown and its journey to become a developed nation faces multiple hurdles requiring major policy overhaul by the government, former chief economic advisor (CEA) Dr Arvind Subramanian has said. In an interview to Karan Thapar for The Wire, Dr Subramanian, who is presently a Senior Fellow at the Peterson Institute for International Economics in Washington DC said that India needs to consistently grow at the rate of 7-8% for the next 25 years to become a developed nation. “We need to have the kind of reforms of the economy of the scale that we did in the 90s and we need to have a favourable global economic environment both of which are now looking very uncertain for India today.
So if you combine the two, the tyranny of arithmetic, our inability to do these reforms, the global environment, I think this is not a very plausible calculation to think that India will become a $12,500 per capita GDP economy in 22 years,” the former CEA said. India’s per capita GDP is currently pegged at around $2,500. Dr Subramanian stated that there is a need for policy to address long-term growth and job creation while underlining that quick fixes like tax cuts in the Budget aimed at boosting consumption would not help much. He listed out various issues being faced by the investors which are hurting the economy. Among the key issues are overzealous tax enforcement, playing field not being level, weaponisation of state in economic sphere and arbitrary change in policies. “There are three big risks which are part of DNA of this government which creates this problem. The first (is) what we have been saying for a long time. The government has chosen to promote national champions. Lots of regulatory favours have been given to 3, 4, 5 groups.
Now the concentration ratio has gone up but the problem is that even if they deliver to some extent in return for the favours they get it just had a pretty chilling effect on other investors,” Dr Subramanian said. He disapproved the government’s ‘protectionist’ policies and termed the quality control orders as pernicious. The former CEA said that India has so far not gained much from the opportunity created in the manufacturing sector by the China Plus One strategy of global MNCs. “I don’t think it has been completely unexploited but it has been heavily underexploited. Numbers suggest that out of, say, every 100 dollar leaving China, we have been able to attract, let’s say, 10 to 15% of that when in fact we should be attracting much more,” Dr Subramanian said. India’s gross domestic product (GDP) growth slowed down to 5.4% year-on-year in the July-September quarter (Q2) of current financial year 2024-25 triggering downward revision in annual growth forecast by multiple agencies.