Chief Economic Advisor V Anantha Nageswaran on Thursday asked India Inc to ramp up capital expenditure and raise workers' compensation in line with profitability growth to achieve over 6.5 per cent economic growth and become a developed nation by 2047.
Highlighting the importance of a virtuous cycle of investment, he said that the increased investment would not only enhance capacity but create more jobs at greater remuneration, leading to higher household savings.
"We are facing this challenge that the growth in profitability has not only exceeded the growth in capital formation, but the growth in profitability has also trailed the growth in compensation, which includes hiring as well, and that is something that we can ill afford for the next 25 or 30 years," he said.
This kind of challenge is generally faced by developed countries and not developing countries like India, he said, while addressing a CII event here.
Citing an example, he said the Indian private sector witnessed a profitability growth of four times from Rs 7.2 lakh crore to Rs 28.7 lakh crore as of March 2024, but the capital formation grew only three times in the second decade.
"So, there has been a small gap in the rate of growth of profitability and the rate of growth of capital formation. If we have to achieve a sustained 6.5 per cent growth minimum in real terms and aim for a higher growth rate then this gap has to close," he said.
The other key area, which the private sector should focus on, is the balanced deployment of capital and labour, he said, adding that India would require a lot of investment in creating capacities, including in infrastructure space, over the next 25 years.
Meeting India's capital needs would require steady growth in household incomes and savings and this can be possible when their income rises, he noted.
Nageswaran also highlighted the importance of reducing the regulatory burden for better productivity of capital, but for this, trust has to be developed between the government and the private sector.
"In fact, a significant share of regulatory overreach is sometimes due to the non-reciprocity of trust on the part of the private sector. Therefore, from our perspective, the 'what' of deregulation is clear, but 'how' becomes more challenging, because sometimes deregulation leads to unintended consequences of abuse as well," he said.
For achieving the goals of Viksit Bharat, he said, there is a need for a collaborative approach based on trust.
ALSO READ: Indian Economy Poised for Strongest Growth in Four Quarters in Q4FY25: Poll
"We cannot achieve the kind of development that we hope to achieve in the next 25 years unless there is a collaborative approach, not just between Union and state governments, but also between governments around the country and the private sector," he added.
The message is trust, deregulation and reciprocation from the private sector are the keys to avoiding the middle-income trap, he said.
With regard to growth, he said India achieved the growth rate that the Economic Survey had projected between 6.3-6.8 per cent and will sustain it for a longer period on the back of good monsoon, capex push by the government, tax relief and low interest rate environment.
On the exchange rate, he said the fall in the rupee may not be too high rather it should be in the range of 0.5-0.8 per cent going forward.
"Do not expect that the Indian rupee will necessarily be weakening as it did in the last 30 years, because, for various reasons. It is quite possible that we may have to deal with the challenge of living in an environment of a stronger currency rather than a weaker currency, because of international trends," he said.
FIRST Business Portal addressing the potential of business capability of North East Region.
