In the Economic Survey this year, there was a lot of focus on deregulation to spur growth. V. Anantha Nageswaran, India's chief economic advisor, has once again stressed on the need to deregulate procedures in turn freeing up the limited bandwidth of enterprises and households to pursue economic activity.
"We need to get going on identifying low-hanging fruits on minute compliance and inspection procedures, get them out of the way, and in turn set up a virtuous circle of deregulation," he said.
Nageswaran makes the case for deregulation especially in the case of non-financial sector, while acknowledging that it was difficult to avoid regulation in the financial sector given the size of the country and high amount of financial illiteracy. He noted that the globalisation boom seen between 1980-2015 was behind us and there was a need to extract the maximum possible growth from domestic sources.
He also said there had been misconception among government departments across the country that putting something on digital platforms meant deregulation, which it clearly was not.
"No country has reached the development stages without having a very vibrant, small and medium enterprise sector. Whether it's in manufacturing or in services, I think that to get there, you need to get down to the nuts and bolts of regulations and remove them," Nageswaran stated.
Meanwhile, at a time, there is a growing push towards renewable energy, he has warned about the challenges of moving too fast towards non-fossil fuels and rather bats for a right balance.
Nageswaran cited the example of Germany where wind power, a major source of electricity, has been affected due to a spell of low wind speeds this winter.
Speaking at the IVCA Conclave in Mumbai, he reminded the audience that countries had developed on the back of low energy prices and abundant supply.
"India needs to strike the right balance, because unless we grow, unless we generate resources, we cannot pursue sustained energy transition. And for a country of this size, if we end up moving too fast towards non-fossil fuels, then what will happen is, energy intermittency will begin to play a very big role, and we need to have so much of backup that the capital costs will go completely haywire," he said.
India has set ambitious target to increase renewable energy production to 500 GW by 2030. As of January 20, 2025, India's non-fossil fuels based energy capacity topped 217 GW.
Nageswaran said that we need cleaner fuels and we need to decrease pollution levels, but green energy or energy transition can't be a "religion."
"The pace and the technological sequencing are very important," he said.
Separately, Nageswaran also warned that global inflation was likely to remain sticky and the kind of inflows that countries saw due to globalisation between around 1980-2015 were unlikely for another decade.
His view come at a time we have seen trade tensions rise post the return of Donald Trump as US President. He has already announced new tariffs on China has threatened other regions too with tariffs. Amid this uncertainty, the US dollar has continued to strengthen and foreign investors continue to pull out massively from emerging market equities, including India.
"In general, regardless of the current developments, more recent developments, it is a fact that these kinds of episodes happen in long cycles. We have to be prepared for the fact that the type of investment flows, the type of trade flows that we all got used to between 1980 and 2015, will not necessarily be continuing for the next 10 years or so. Because we also had extremely low interest rates in this period, which helped," Nageswaran noted.
With global inflation likely to remain sticky, interest rates will be higher than what we saw in the past decade, he felt.
Amid the heavy foreign institutional investment outflows from India, the rupee continues to depreciate against the dollar and touched a new low of 87.95 on Monday before pulling back a bit.
Nageswaran noted that in the past 30 years the rupee had depreciated around 3 per cent annually.
He said it was hard to forecast exchange rates over short-terms (three years or so); in the long-run (over five years), it would boil down to the inflation differential.
"If inflation rates in the developed world prove to be stickier, and if we are going to settle down at an inflation rate of around 3-4 per cent rather than 5-6 per cent as before, and the developed countries also end up finding that they can't bring it below 3 per cent, then naturally the gap between the two really shrinks a lot. And therefore, India may be able to experience a much lower rupee depreciation rate than what we have seen historically," he said.
