India needs to focus on the manufacturing sector to achieve sustained growth of 7-7.5 per cent until 2030, Chief Economic Advisor V Anantha Nageswaran said.
In an S&P Global report titled ‘Look Forward: India’s Moment’, Nageswaran said that manufacturing should be a key growth area given the country’s comparative advantage in terms of skilled labour, improved physical infrastructure, well-established industrial ecosystem and large domestic market.
As regards the services sector, he said the composition should change in favour of high value added services as this would improve earnings by attracting foreign demand.
“The Indian economy, in real terms, needs to grow annually at 7-7.5 per cent until 2030… The share of manufacturing in total gross value added has to increase from 16 per cent at present to at least 25 per cent of GDP at the expense of agriculture and low value added services,” Nageswaran said.
He further said the investment rate (gross fixed capital formation/GDP) needs to increase from 29 per cent to at least 35 per cent. “The private sector, including foreign direct investment, must drive up the investment rate as the government has limited fiscal space,” he said.
The CEA suggested that the key initiatives in this regard should include the development of domestic corporate bond market, and well-targeted fiscal incentives to attract investment.
Regarding government investments, he said the focus should be on infrastructure and public goods which in turn would facilitate and stimulate private sector investment.
According to Nageswaran, the net exports need to increase from about (-)3.7 per cent of GDP to a more balanced figure, which can be done by creating a market for high-end manufacturing and high value added services.
He also underlined the need for keeping inflation under check.
“The government needs to show fiscal prudence with austerity measures. There also needs to be efforts to improve financial inclusion and financial literacy to facilitate the understanding and application of financial instruments in savings and investment decisions,” Nageswaran said.
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