Deregulation, or the Hard Road to 2047

Growth at 8 percent for a decade is an ambitious target, and India will have to rethink regulation, industry and policy to get there.

The eve of the Union Budget presentation is typically overshadowed by the spectacle of fiscal numbers. That critical document - the Economic Survey - offers a more nuanced portrait of India’s economic trajectory. The ES typically provides an in-depth assessment of the country’s economic performance, outlines key structural challenges and proposes policy imperatives for the future.

This year’s Survey situates itself within the grand ambitions of the Vikisit Bharat Mission, which envisions India as a developed nation by 2047. But the gap between aspiration and reality is stark. The International Monetary Fund (IMF) defines a developed economy as one with a per capita income of $12,500. India currently lags at a mere $2,939. To bridge this divide, the Survey argues, India must sustain an annual growth rate of 8 percent for the next decade - an acceleration of at least 1.5 to 2 percentage points from its present trajectory. A formidable challenge, but not an impossible one.

Achieving this will require a fundamental transformation of India’s economic structure. The ES identifies key drivers for this transition: full literacy, high-quality education, a thriving industrial base and an aggressive embrace of emerging technologies such as artificial intelligence, robotics, and biotechnology. Employment generation is critical, with the creation of at least 7.85 million non-farm jobs annually to absorb its growing workforce. The services sector has performed well, but manufacturing remains an Achilles’ heel. Investments currently stand at 31 percent of GDP, well below the 35 percent threshold necessary to sustain higher growth. Moreover, a robust social infrastructure, particularly in healthcare, is crucial to sustaining human capital and productivity.

The Survey issues a stark warning about China’s growing dominance. China currently commands a staggering 28.8 percent of global manufacturing output, a figure projected to rise to 45 percent by 2030. In contrast, India’s share is a paltry 2.8 percent. The implications are profound: India struggles to produce critical goods at scale and remains heavily dependent on Chinese supply chains, particularly in renewable energy and electric vehicle components. This vulnerability exposes the economy to price fluctuations, supply disruptions and currency risks.

The solution lies in the ‘Make in India’ initiative. Strengthening domestic manufacturing and boosting exports are non-negotiable if India is to emerge as a serious contender on the world stage. However, industrial growth cannot flourish in a regulatory quagmire. The Survey underscores the need for bold deregulation to enhance ease of doing business. Excessive red tape stifles entrepreneurship, deters investment and inflates operational costs. The government has made progress, scrapping over 2,000 obsolete laws over the past decade, implementing the Goods and Services Tax (GST), and introducing the Insolvency and Bankruptcy Code. More recently, the Jan Vishwas Act of 2023 decriminalized 183 provisions across 182 central laws, easing the compliance burden on businesses.

The upcoming Jan Vishwas Bill 2.0 is set to decriminalize 100 more provisions across various laws. Additionally, a high-level committee will review regulatory bottlenecks in the non-financial sector, with an Investment Friendliness Index benchmarking state industry practice. If executed effectively, these measures could catalyse industrial expansion and foreign investment.

However, regulatory reform is not the sole preserve of the central government. State governments must align with the broader deregulation agenda, prioritizing economic growth over political posturing. The Survey emphasizes the butterfly effect of deregulation where incremental improvements in regulatory efficiency trigger a cascade of economic benefits, from increased entrepreneurship to heightened global competitiveness. States that recognize this dynamic will reap the rewards of higher investment and job creation.

That said, legal reform alone is insufficient. India must undergo a cultural shift in its perception of business. Decades of socialist rhetoric have ingrained deep-seated scepticism towards large enterprises, often painting them as instruments of exploitation. Business leaders are frequently vilified for political convenience, a mindset that stifles ambition and discourages risk-taking. If India is to become a global economic powerhouse, it must abandon these outdated prejudices and embrace a more business-friendly ethos.

The road to 2047 is long, and the 8 percent growth imperative is daunting. Success hinges on policy consistency, regulatory agility and an unwavering commitment to economic openness. India’s tryst with destiny is not guaranteed but with the right reforms, it is well within reach.

(The author is a Chartered Accountant and works at Authomotive Division of Mahindra and Mahindra Limited. Views personal.)