India’s Chief Economic Adviser, V. Anantha Nageswaran, has emphasised the need for deregulation and structural reforms to accelerate the country’s economic growth, particularly at the state and local levels. His remarks come amid a second consecutive quarterly slowdown in India’s GDP growth.
Speaking after the release of the second-quarter GDP data, Nageswaran identified global factors such as excess manufacturing capacity in other regions and import dumping as key contributors to the slowdown. Despite these challenges, he noted that the situation presents an opportunity to focus on critical structural changes.
“This is a moment to reassess private-sector hiring and compensation practices while doubling down on deregulation,” he said. “Moreover, enhancing state capacity for public investment by shifting focus from revenue expenditure to long-term, growth-enhancing initiatives is crucial.”
Economic Slowdown
India’s GDP grew by 5.4% in the July-September quarter of FY25, a decline of 270 basis points compared to the same period last year and below the forecasted 6.5%. Weaker private consumption and a decline in manufacturing were the main factors driving the slowdown. Sequentially, growth fell by 130 basis points from 6.7% in the previous quarter.
Gross Value Added (GVA), which measures the overall economic output, grew by 5.6% in Q2, compared to 7.7% in the corresponding period last year. Gross Fixed Capital Formation (GFCF), a key indicator of investment in the economy, rose by 5.4%, significantly lower than the 11.6% growth recorded a year ago and 7.5% in the first quarter.
Nageswaran noted that while structural domestic issues played a role, special factors like monsoon activity, reduced footfalls, and religious observances may have temporarily dampened urban demand. He also cited heightened geopolitical risks, including uncertainties surrounding the U.S. presidential election, as amplifying global economic challenges.
Potential for Recovery in the Second Half
Despite the current slowdown, the Chief Economic Adviser expressed optimism for stronger growth in the second half of FY25. Factors such as robust rural demand following a good monsoon and harvest, along with increased government spending, are expected to fuel a rebound. India remains one of the fastest-growing major economies, supported by projections of recovery in key sectors.
Nageswaran highlighted the divergence in India’s manufacturing sector, pointing out the contrast between rising steel consumption and stagnant domestic steel production. Addressing such issues, he said, would be critical for reviving growth.
Path Forward
Reinvigorating growth, according to Nageswaran, will require addressing barriers to capital formation and scaling up investments. “There are impediments that need to be examined, including those related to excessive rainfall and the uncertainties of an election season. However, there’s substantial potential for capital expenditure in the coming months,” he said.
Nageswaran also highlighted the global trend of developed economies turning to deregulation as a means to boost growth. For India, he advocated an aggressive push towards deregulation, particularly at the state and local levels. This, he argued, would help lift growth rates from the current trend of 6.5% toward 7% or higher.
“To achieve our employment and manufacturing aspirations and bolster capital formation, deregulation must be prioritized,” he said. “This approach will not only support immediate growth but also establish a foundation for long-term economic expansion.”