Need judicial, bureaucratic reforms: Ex-CEA on how India can achieve 8-9% growth

India can raise its economic growth to 8-9% by pursuing the next wave of structural reforms aimed at reducing the cost of doing business and financing, former Chief Economic Adviser (CEA) Krishnamurthy V Subramanian said on Monday. He argued that judicial and bureaucratic reforms are now critical to sustaining faster expansion.

Subramanian said India's macroeconomic stability had already laid the foundation for sustained growth, but achieving the next leap would require reforms in land, labour and capital markets, along with improvements in the judicial and administrative systems.

"Macroeconomic stability got India to 7 per cent growth. Institutional reforms can take India to 9 per cent," he said in an interview with news agency PTI.

Subramanian served as India's 17th Chief Economic Adviser between 2018 and 2021 before becoming Executive Director at the International Monetary Fund.

Judicial, bureaucratic reforms key to faster growth

Subramanian said India had previously recorded growth above 8% when private investment accounted for more than 30% of GDP, compared with about 22-23% currently.

"India achieved above-8 per cent growth when private investment as a share of GDP was more than 30 per cent. We are currently at around 22-23 per cent, 7-8 per cent short of the target," he said.

He credited the government's public capital expenditure over the past five years with creating infrastructure that could crowd in private investment, adding that the banking sector, with gross non-performing assets at multi-decade lows, was well placed to support the next investment cycle.

"We will then leapfrog from 7 to 9 per cent growth!" he said.

While describing India's macroeconomic fundamentals as strong, Subramanian said lower crude oil prices offered a near-term boost. "What takes us from 7 to 9 per cent growth is the next wave of reforms: factor market, judicial and bureaucratic reforms that reduce the cost of doing business, and the cost of financing."

Earlier this month, the Asian Development Bank lowered India's GDP growth forecast for the current financial year to 6.6% from 6.9%, citing concerns over higher energy prices triggered by the West Asia crisis.

Private investment is the key

Subramanian said stronger domestic private investment would not only accelerate economic growth but also attract long-term foreign capital. 

Commenting on the sharp decline in foreign direct investment (FDI) and portfolio inflows, he said the US Federal Reserve's aggressive monetary tightening had diverted capital towards dollar assets across emerging markets.

"But that was context, not excuse. The domestic explanation is more actionable, and more important," he said. "Domestic private investment is the magnet that attracts global capital."

He argued that reforms lowering the cost of doing business were the most effective way to attract durable foreign investment. "Judicial and bureaucratic reforms are central to that agenda. The reformatory zeal that India displayed before and during the Covid crisis needs to rejuvenate," he said.