NEW DELHI: Chief Economic Advisor V. Ananth Nageswaran delivered a stark warning to India’s industry leaders today, identifying a critical “trust deficit” and unsustainable economic imbalances as key threats to the nation’s ambition of becoming a developed economy by 2047.
Speaking at the CII Annual Business Summit, Chief Economic Advisor (CEA) outlined a three-pronged strategy – “Trust, Deregulate, and Reciprocate” – as the essential formula to avoid the middle-income trap.
The CEA sees three major challenges to India’s development goals.
The Mismatched Inheritance: India, he argued, is saddled with a capital-intensive development model born from the Western Industrial Revolution – a historical “accident” driven by labor scarcity after the Black Death. This model is fundamentally “alien” to India’s core strength as a labor-abundant nation, creating an inherent handicap.
The Energy-Transition Tightrope: Achieving ‘Viksit Bharat 2047’ before ‘Net Zero 2070’ requires navigating a complex energy transition. The inherited model relied on cheap, abundant power, but the shift to renewables brings high costs (doubling investment for backup power, grid upgrades like China’s $800 billion plan) and strategic vulnerabilities due to dependence on critical minerals from “strategically difficult” sources.
The Profit-Job Imbalance: Nageswaran highlighted a concerning trend: corporate profitability has surged significantly faster than both capital formation (investment) and worker compensation. While acknowledging past reasons (balance sheet repair, global sluggishness), he declared this imbalance unsustainable for a nation needing to create 8 million non-farm jobs annually. “This is something we cannot afford for the next 25 or 30 years,” he stated bluntly. The distribution of gains from AI/robotics between capital and labour will be crucial for future income growth and savings.
Nageswaran identified India’s societal structure – high trust within kinship/community groups but low trust outside them (including between society/government and in impersonal transactions) – as a critical impediment to sustained high growth. This deficit, he argued, hampers the provision of public goods; fuels regulatory overreach (“a significant share… is due to non-reciprocity of trust by the private sector”); and prevents India from achieving the scale necessary to transcend middle-income status.
He prescribed a collaborative compact between government and industry. He positioned deregulation as a key tool to boost efficiency and lower the cost of doing business even as he challenged industry leaders to close the widening chasm between soaring profitability and lagging capital investment.
He also asked the industry to actively pursue labor-intensive manufacturing alongside capital-intensive growth. He stressed there is “no medium-term trade-off” between capital and labour interests; mass unemployment ultimately undermines business.
The CEA once again warned the industry against over-dependence on AI. He said AI deployment is a “business decision choice,” not an inevitability. “Choose where to deploy AI and where human labour is more appropriate for India’s job needs,” he said.
Nageswaran issued a crucial warning to exporters, saying that they should not assume continued rupee depreciation. According to him, global trends might force India towards a stronger currency, making domestic productivity gains driven by deregulation and innovation even more critical for competitiveness.
Source: The New Indian Express
