'I will not be surprised if there is a 7 per cent handle in front of the decimal place for the full financial year.'
The Indian economy can grow above the upper range of 6.8 per cent in 2025-26 (FY26) as estimated by the Ministry of Finance and it will not be surprising if the gross domestic product (GDP) goes above the 7 per cent mark for the current financial year, Chief Economic Advisor V Anantha Nageswaran said at the keynote address and a conversation with A K Bhattacharya/Business Standard during the Business Standard BFSI Insight Summit 2025.
Nageswaran also said that inflation and the rupee are stable, and fiscal discipline keeps deficits and borrowing costs under control.
On economic outlook
Couple of months ago, we faced a penal tariff of 50 per cent from the US and a lot of us were wondering whether the economic growth rate in the current financial year would sort of tend towards the 6 per cent range.
That was a concern at that time. Now, fast forward two months later, people are wondering whether it will be 7 per cent or above and we ourselves did not revise our growth forecast.
By nature, we are somewhat on the cautious side. We had given a range of 6.3 to 6.8 per cent as the real GDP growth rate for 2025-26.
When we presented the first quarter GDP numbers, we said the second quarter was also looking to be on track to be a 7 per cent GDP growth number after looking at the two months of second quarter data at that time which we had by August.
So, together we feel that this financial year, we will be somewhere to the north of our range of 6.3 to 6.8 per cent, even above 6.8 per cent for the full financial year.
I will not be surprised if there is a 7 per cent handle in front of the decimal place for the full financial year.
On inflation, supply-side improvements, and structural change
Now, most of us would be looking at the CPI (retail inflation) numbers lately and thinking that it has come down to such low levels of below 2 per cent largely because of cyclical factors like food price inflation.
However, we are not very good at understanding structural changes happening in real time.
And, the important thing is that we are not according as much value as we should be to investment in physical infrastructure and supply side infrastructure supplemented by digital infrastructure which has happened especially post-Covid.
Now, these two together remove a lot of bottlenecks that used to be the devil in the economy.
So much so that after three to four years of growth, we used to run into routine overheating signs and cycles, overvalued exchange rates, high inflation, high trade deficit and current account deficit, etc.
On fiscal discipline and cost of capital
The government's key contribution to the economy, beyond demand stimulus, has been maintaining fiscal discipline post-Covid, which has enhanced macro stability and lowered capital costs.
Despite low nominal GDP growth, the fiscal deficit is on track to reach 4.4 per cent (of GDP in FY26).
Concerns about reducing debt-to-GDP through inflation are mitigated by India's inflation-targeting policy.
Steady fiscal management has lowered the 10-year borrowing cost of the Government of India which was 6.5 per cent to 9.5 per cent.
This has also reduced private sector interest rates and that is the biggest fiscal stimulus a government can give.
So all told, notwithstanding the uncertainties temporarily that we are facing, the economy is doing as well as it can and better than what we feared a couple of months ago.
And, that is a good thing, because growth is obviously the most important necessary condition upon which fiscal revenues or welfare payments and many other parameters depend on.
There is a jugalbandi that exists between fiscal and monetary policy as the Union government is sticking to fiscal prudence and the fiscal stability path.
Even with respect to inflation targeting, apart from central bank actions, to a large extent fiscal restraint has also contributed quite considerably to the delivery of overall declining inflation, even if seasonally we have had spurts of food price inflation, etc.
The concern of fiscal policy and monetary policy working at cross purposes is quite remote to non-existent as far as India is concerned.
Now, the monetary policies inflation targeting framework is up for review probably by next year.
On deregulation and compliance simplification
The Union government and state governments are investing in areas of deregulation with a task force on state level deregulation and a high level committee under the former cabinet secretary on deregulation.
Also, the Indian private sector is no less of a laggard when it comes to imposing its own compliance requirements on the public.
This reflects broader societal issues of low trust outside familiar networks.
Reducing documentary and compliance burdens requires both government and private sector initiatives, alongside a cultural shift towards greater trust in broader institutional and societal relationships.
On stable coins and digital arrests
Stable coins will become one more source of competition for banks in terms of being able to act as intermediary and to be able to attract deposits.
Digital arrests are instances where many elderly people are robbed of their hard-earned savings and banks have an obligation to treat those cases both urgently and sensitively.
Therefore, banks have an obligation and a personal self-preservation interest to take digital arrest much more seriously than what they are doing so far.
Without that, there will be a tendency for people to withdraw their bank deposits and adopt an inferior solution of keeping them under the mattress.
This is also likely to lead to cash and circulation going up and banks losing their intermediation role, etc.
Therefore, taking digital arrest very seriously by the banking community and the banking fraternity is very important because it might over time undermine the very foundation of banking.
On digitisation and AI challenge
Banks are reluctant to use digital tools, despite the digital public infrastructure (DPI) being a big success in India.
Whether it is account aggregator, cash flow-based lending, or using digilocker documents.
Formalisation of the Indian economy has been one of the important success stories of the last five years.
And therefore, I think it's very important that the financial institutions themselves understand the kind of global scenario we are going to face in the next 25 years.
There is mixed evidence on whether artificial intelligence (AI) is delivering on the potential it claims to be delivering, which in one way is not a bad thing if it is not.
Because then, its ability to replace humans will also be limited if it is not delivering on its potential.
Whether that justifies the valuations etc, is a different story. In some sectors like education and healthcare, we should leverage AI to reach remote corners.
In other areas, we should be able to draw the line or at least make sure that productivity and profitability gains accruing from the application of AI are distributed fairly.
So, it is both policy design and private sector consciousness that have to work together there.
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Feature Presentation: Aslam Hunani/Rediff
