State governments, private sector to spur India economic growth: V. Anantha Nageswaran

India will see economic growth accelerate over the next decade with increased participation from sub-national governments and the private sector, said the country’s Chief Economic Advisor.

  • State governments and the private sector will drive the next decade of growth in India.
  • The election outcome will not impact current priorities including job creation and factor market reforms.
  • The formation of a coalition government will enhance the prospect of factor market reforms.

The key to India accelerating economic growth over the next decade are in the hands of sub-national governments and the private sector, which will play an important role in the process of deregulation, capital formation, and factor market reforms, said V. Anantha Nageswaran, the country’s Chief Economic Advisor, at Nomura Investment Forum Asia.

India’s general election outcome, in which Prime Minister Narendra Modi’s party won less seats than expected and had to form a coalition government, should have no impact on issues including job creation and factor market reforms as they remain priorities for the country’s economic growth, said Nageswaran.

Job Creation

In particular, governments at the national and state level should focus on deregulation to attain robust employment levels in India, he said.

“I think the burden of regulation, inspection, and compliance falls disproportionately on micro, small, and medium-sized enterprises,” said Nageswaran.

These companies have had their management bandwidth and their ability to invest time and financial resources to grow their businesses taken away by restrictive regulations.

“If that is lifted off the backs of these enterprises, not only will India create a middle strand that is currently lacking, but it will also lead to considerable job creation, and that is the pillar we need to focus on, apart from investment and capital formation,” said Nageswaran.

Capital Formation

Another driver of employment growth that is already well underway is private sector capital formation, the process of businesses accumulating capital goods to raise production.

“I have always maintained that the baton of capital formation has to shift to the private sector. That shift is happening,” said Nageswaran, citing an increase in non-financial private sector capital formation in the past two years after bottoming out in 2020 and 2021 due to reasons including the Covid-19 pandemic and higher interest rates. That said, government investment continues to be important in areas such as energy transition that are not yet ripe for private sector participation.

Factor Market Reforms

A more broad-based approach to raise productivity and efficiency across all spheres of the economy can be taken by local governments which have greater visibility over the unique needs and circumstances of their respective states.

Given that capital market reforms have largely been completed by the national government, Nageswaran said it will be critical for state governments to look into factor market reforms including labor, land utilization, electricity generation and distribution, education and healthcare.

With the opposition parties taking up more seats in the Indian Parliament compared with the last general election, and some regional parties lending support to the ruling coalition, these reforms could get a leg up.

“If anything, I would say that the election outcome increases the probability of some of these factor market reforms happening, because it creates avenues for dialogue, for consensus building,” he said.


“The most important differentiator compared to the last decade is that the balance sheets of banks and the non-financial corporate sector are both in excellent shape and the underlying economic growth prospects are still somewhere between 6.5% and 7%,” he said, adding that the economy could potentially grow at a much higher pace once deregulation at the sub-national government level and factor market reforms are addressed.

Rather than the election results, "there are many elements of stability and continuity that we need to focus on, and they will be the secular drivers of growth, and they remain unaffected,” Nageswaran concluded.

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