Rural demand is strong, reforms are advancing at the state level, and sustained gains will depend on productivity, competitiveness, and outcome-driven public spending, chief economic adviser V. Anantha Nageswaran told Prasanta Sahu and K G Narendranath. Edited excerpts.
Q: How strong and durable is the consumption booster via GST and income tax reliefs? Rural consumption revival seems fleeting and weak…
The concern about rural consumption is not borne out by data. In fact, rural consumption is doing better than urban consumption. Indicators such as tractor sales, two-wheelers, and even four-wheeler sales show stronger performance in rural areas. So, the notion that rural demand is weak is outdated.
As for the tax relief, its impact is largely a one-off effect lasting about a year before becoming part of the baseline. People adjust their spending accordingly. Ultimately, sustained consumption growth depends on income growth, which in turn comes from employment generation. That is where the focus needs to be.
Q: Tax buoyancy has dipped due to concessions, and the gap in tax-to-GDP ratio seems to widen…
I think the private sector has to decide what it wants. When taxes are high, the private sector asks for tax cuts, when taxes are reduced, concerns are raised about the tax-to-GDP ratio falling. We have to choose what we want. Also, the impact of tax reforms cannot be judged over a one-year horizon. Overall, the tax-to-GDP ratio has been rising over time, as shown in the Survey’s fiscal chapter.
Q: With structural, governance, and deregulation reforms underway—some still being implemented—do you see scope for a further increase in India’s potential growth?
Yes, undoubtedly. Labour reforms are already being implemented by states, including flexibility for night work, higher women labour force participation, and removal of occupational restrictions on women. The labour codes have been notified, and rules are expected soon.
Beyond this, further gains in potential growth depend on improving manufacturing competitiveness—reducing input costs, removing cross-subsidisation (especially high power tariffs for industry), easing land-use conversion, focusing education policy on outcomes rather than inputs, and enabling innovation beyond just AI-related areas.
Progress in these areas would allow for an upward revision of potential growth estimates.
Q: The Survey highlights that fiscal indiscipline by some states in a way penalises fiscally prudent ones and raises borrowing costs for the Centre. Would mechanisms like rating state government bonds help?
This issue needs to be carefully thought through. There are already mechanisms through the RBI and the Union government to influence state finances, such as overdraft limits and conditional fiscal flexibility.
In the past, additional borrowing room has been linked to reforms. Moreover, we are awaiting the Finance Commission’s report, so it would be premature to speculate publicly on new mechanisms at this stage.
Q: Spending on education and health remains a small share of the budget, with limited visible growth. Isn’t this a concern?
It’s important not to confuse outlays with outcomes. Often, governments are criticised for focusing on inputs rather than outcomes. What matters most is how effectively spending translates into better education and health outcomes, not just the headline expenditure numbers.
Q: There is already a public enterprises policy that talks about privatisation. What prompted the Survey to suggest a new equity monetisation mechanism to reduce the government stake to 26% in listed CPSEs, and does this also extend to public financial institutions?
This is ultimately for the government to decide—both in terms of scope and application. The idea is to identify potential avenues for augmenting non-tax revenues.
Equity monetisation can also improve management efficiency, increase free float, and enhance liquidity in financial markets. It is in this broader spirit, and considering multiple benefits, that the Survey made this suggestion.