CEA: India's 7% growth potential can rise to 7.5% in next few years with more reforms

While the Economic Survey 2025-26 has scaled up India’s medium-term growth potential to 7% from the previous 6.5%, Chief Economic Adviser V. Anantha Nageswaran on Thursday said it could be higher at 7.5% if more measures are taken to improve manufacturing competitiveness and further process reforms are undertaken. 

“If we are able to achieve manufacturing and export competitiveness and pursue further process reforms in the areas of land and cross subsidisation and bring down the cost of manufacturing, this 7% can even rise to 7.5% and 8% in the next few years as well,” the CEA said.   The Economic Survey, tabled in Parliament on Thursday by finance minister Nirmala Sitharaman, also put forward more reforms that could be explored by policymakers. While it gives food for thought, the Survey, which is traditionally tabled on the eve of the Union Budget, also gives indications of policy directions that could be taken.   Taking cognizance and sounding a note of caution from the continued external sector volatilities, a key message of this year’s survey has been the focus on self-reliance and Swadeshi in manufacturing along with deregulation and clearing up bottlenecks that pose a hindrance to investors.   “We point out the importance of deregulation, input cost reduction, reduction in inversion, cluster led growth and also the importance given to R&D and innovation…these are various factors we are highlighting,” the CEA said in a press conference.  Swadeshi   Accordingly, the Survey has proposed Swadeshi as a disciplined strategy towards indigenisation noting that not all import substitution is either feasible or desirable. “Protection without productivity-enhancing investment, capability upgrading, and export orientation creates fragility rather than strength,” it said. It has accordingly proposed a three-tiered framework for indigenisation so that intervention builds long-run capability rather than preserve inefficiency.   These include critical vulnerabilities with high strategic urgency, economically feasible capabilities with strategic payoffs and low strategic urgency or high-cost substitution.   It has also suggested a focus on scaling manufacturing, improving export competitiveness, strengthening global value chain integration, and enhancing research and development and skills.  Asset monetisation   Another innovative suggestion in the Survey, which officials said could be explored, is to strengthen receipts from equity monetisation by selectively reducing Government equity in certain CPSEs beyond the minimum public shareholding norms. At present, in about 30% of listed CPSEs, government shareholding is below 60%, which limits further disinvestment through offer for sale. This is because the Companies Act stipulates that a ‘government company’ must have at least 51 per cent of its stake held by the central or state government.   The Survey has suggested amending the definition of ‘government company’ limited to listed entities, to allow them to remain as government companies with a minimum of 26% ownership. Alternatively, if the objective is eventual privatisation, the government could continue phased OFS below 51% and even towards full exit, without changing the legal definition of “government company”, it said.  Fiscal consolidation

The Survey also welcomed the decision of the government to switch to a new fiscal policy framework has announced a debt ratio target of 50±1% by March 31, 2031, which meets the requirements. The new policy with the debt reduction target is likely to be announced in the Union Budget 2026-27. The Survey said that once the current target is met and fiscal deficits decline gradually, a new Fiscal Responsibility and Budget Management target may be considered at the end of the Sixteenth Finance Commission period. “A return to a rule-based regime will likely be credible and durable if ushered in after a period of lower global macro uncertainty and after debt and/or deficit ratios come meaningfully closer to 50% or 3% of GDP, respectively,” it said.   It has however, highlighted that states finances are a point of concern, in particular the increase in unconditional cash transfers.   The Survey has also provided suggestions for improving urbanisation and making cities more liveable, scaling up MSMEs, reskilling and jobs amidst the new digital economy and making India’s AI ecosystem more sustainable.