India can absorb capital inflows, but more land, labour reforms needed: CEA
V Anantha Nageswaran said unabsorbed capital can lead to credit allocation to nonproductive areas
India’s $3.7trillion economy is wellpositioned to absorb (the expected flood of) capital inflows than ever before, but reforms are necessary, says V Anantha Nageswaran, Chief Economic Advisor to the Government of India.
Nageswaran credits India’s growing absorptive capacity, at least in part, to the productionlinked incentive (PLI) scheme covering 14 sectors, including the capitalintensive semiconductors.
However, the economist underscores that to be able to take in capital inflows and not end up with a problem of plenty, India should undertake “granular reforms,” particu‘breakfast with businessline’
larly in land and labour, which calls for the cooperation of both the central and state governments.
Nageswaran was answering questions posed by businessline’s Editor Raghuvir Srinivasan, at a breakfast with businessline meet — a gathering of Chennai’s business community organised by businessline and hosted by ITC Grand Chola hotel.
MANY AVENUES
“Today there are many areas where the capital can be productively absorbed,”
Nageswaran said, responding to a question on how prepared India is to take the capital flows, which would happen especially if the US started lowering interest rates.
India is estimated to have received $50 billion in foreign portfolio investments in 202324, a trend that is likely to sustain. The CEA cautioned that unabsorbed capital could create problems by leading to credit allocation to nonproductive areas.
VIKSIT BHARAT TARGET
Asked if the Viksit Bharat target of $30trillion (GDP) by 2047 is realistic, he said, “Is it realistic? Yes. Is it achievable? Yes. Is it easy? No”. He pointed out that the “global backdrop” now is very different than when China was growing between 1980 and 2010. China had it favourable in terms of globalisation, opening up of markets, and the narrative on climate change not being there. But the $30trillion target is not unachievable, and the target factors in the inevitability of the growth rate coming down due to the base effect.
“It is possible for us to grow 910 per cent in the next 810 years. That will take us to $7 trillion by about 2031,” he said. But the large base could also work in India’s favour, as “size gives heft, and more trade will happen.”
However, it is important to bring about “factor market reforms” (land, labour, etc.), which are under the ambit of both the Central and State governments, he added.