5- India’s Medium-Term Economic Outlook: Deregulation as the Key Growth Driver
Introduction
India is at a crucial juncture in its economic development, with aspirations to become a USD 5 trillion economy by FY28 and USD 6.3 trillion by FY30. The path to achieving these ambitious goals depends on sustained high growth rates, economic reforms, deregulation, and enhanced economic freedom for businesses and individuals.
The global economic landscape has shifted dramatically in recent years. Geo-economic fragmentation, protectionist policies, disruptions in global supply chains, climate transition challenges, and the rise of China as a manufacturing giant are reshaping international trade and investment patterns. While India has witnessed significant structural reforms over the past decade—including the Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), and digital financial inclusion initiatives—there is an urgent need to address regulatory bottlenecks that hinder business growth and investment.
This chapter provides a comprehensive analysis of India’s medium-term economic outlook, focusing on:
- Global and domestic growth projections
- The impact of geo-economic fragmentation on India
- China’s manufacturing dominance and India’s energy security
- The role of deregulation in promoting economic growth and competitiveness
- Policy recommendations for unlocking India’s full economic potential
By understanding these key factors, India can strengthen its domestic growth levers, foster entrepreneurship, and create a regulatory environment that supports long-term prosperity.
India’s Medium-Term Economic Outlook: Growth Projections and Challenges
Economic Growth Prospects
- India’s nominal GDP grew at an average rate of 8.9% (USD terms) from FY94 to FY24.
- IMF’s World Economic Outlook (WEO) projects India’s economy to expand at a rate of 10.2% per year (USD terms) from FY25 to FY30.
- The exchange rate (INR/USD) is expected to depreciate by only 0.5% annually, much lower than the 3.3% depreciation seen in the past three decades.
- The current account deficit (CAD) is projected to remain stable at 2.2% of GDP by FY30.
Key Domestic Growth Drivers
- Investment Rate: Needs to increase from 31% to 35% of GDP to sustain long-term growth.
- Manufacturing Expansion: Focus on Production-Linked Incentive (PLI) schemes and MSME (Micro, Small & Medium Enterprises) growth.
- Job Creation: India must generate 7.85 million new jobs annually until 2030 to meet workforce demand.
- Digital Transformation: The India Stack (Aadhaar, UPI, DBT) and digital public infrastructure are boosting financial inclusion.
Geo-Economic Fragmentation: A Shift from Globalization to Protectionism
What is Geo-Economic Fragmentation?
- Geo-economic fragmentation (GEF) is the reversal of global economic integration due to strategic, trade, and security considerations.
- Over the last 40 years, the global economy tripled in size, lifting 1.3 billion people out of extreme poverty. However, protectionist policies threaten to reverse these gains.
- The World Trade Organization (WTO) reports that trade-restrictive measures covered USD 887.7 billion in trade (FY24), compared to just USD 337.1 billion in the previous year.
Impact on India
- Trade barriers, tariffs, and export restrictions in developed economies are slowing India’s export growth.
- FDI (Foreign Direct Investment) flows are becoming more regionally concentrated, impacting emerging markets.
- Supply chain disruptions in semiconductor and critical mineral industries are affecting India’s manufacturing sector.
Strategic Policy Response
- Strengthening regional trade agreements (RTAs) with ASEAN, Africa, and Latin America.
- Building resilient supply chains through domestic manufacturing initiatives.
- Enhancing foreign investment policies to attract capital despite global uncertainties.
China’s Manufacturing Dominance and Its Implications for India
The Rise of China as a Manufacturing Powerhouse
- China accounts for 45% of global manufacturing output, up from just 6% in 2000.
- China has become the world’s largest producer of automobiles, solar panels, batteries, and rare earth minerals.
- 80% of the world’s lithium-ion battery manufacturing capacity is in China.
Challenges for India
- China’s dominance in renewable energy manufacturing poses challenges for India’s energy transition.
- Indian MSMEs struggle to compete with Chinese firms in terms of cost and efficiency.
- Dependence on Chinese imports for semiconductors, solar panels, and electric vehicles raises national security concerns.
Policy Measures to Counter China’s Influence
- Boosting domestic manufacturing under PLI schemes (electronics, EVs, solar equipment).
- Investing in rare earth mineral processing to reduce import dependence.
- Developing alternative trade partnerships to diversify supply sources.
Climate Transition and Energy Security: The Road Ahead for India
India’s Renewable Energy Targets
- India aims to install 500 GW of renewable energy capacity by 2030.
- The share of solar and wind energy in power generation is expected to increase from 25% (2024) to 50% (2030).
Challenges in the Green Energy Transition
- Dependence on China for 75% of lithium-ion battery imports.
- High costs and technological barriers in domestic solar panel production.
- Investment needs of USD 546 billion for clean energy transition.
Strategic Policy Recommendations
- Strengthening battery recycling and rare earth mineral processing industries.
- Expanding R&D in advanced battery technologies (Sodium-ion, Solid-State Batteries).
- Partnering with like-minded nations (Japan, EU, USA) to develop alternative supply chains.
Deregulation and Economic Freedom: A Catalyst for Growth
The Burden of Regulatory Compliance
- Excessive regulations hinder MSME growth, job creation, and investment.
- Factory regulations force small businesses to remain small, limiting employment growth.
- Complex land and building laws increase compliance costs for entrepreneurs.
The Need for Deregulation
- Reducing compliance burdens for businesses.
- Streamlining licensing, land acquisition, and taxation procedures.
- Enhancing private sector participation in regulatory decision-making.
Global Examples of Successful Deregulation
- United States: The “One-In, Two-Out” rule ensures that for every new regulation, two existing regulations are eliminated.
- United Kingdom: The Better Regulation Framework reduces compliance burdens for businesses.
- New Zealand: Established a Ministry of Regulation to systematically repeal outdated laws.
Future Economic Prospects and Policy Recommendations
Key Growth Strategies for India
- Accelerating Domestic Investments
- Increasing public and private capital expenditure in infrastructure and manufacturing.
- Strengthening MSME sector growth through financial support and skill development.
- Enhancing Trade and Investment Policies
- Strengthening trade agreements with emerging markets.
- Incentivizing foreign direct investment (FDI) in high-tech industries.
- Deepening Financial Reforms
- Expanding digital lending for MSMEs.
- Enhancing financial inclusion through digital banking initiatives.
- Boosting Innovation and Technological Development
- Increasing R&D spending from 0.7% to 2% of GDP.
- Encouraging AI, robotics, and biotechnology advancements.
Conclusion
India’s medium-term economic outlook presents immense growth opportunities but also significant challenges. Geo-economic fragmentation, climate transition, and China’s economic influence require a strong domestic policy response. Deregulation and economic freedom are crucial to unlocking India’s full potential.
By reducing regulatory burdens, enhancing trade and investment policies, and boosting domestic manufacturing, India can sustain 8%+ GDP growth and achieve its vision of becoming a USD 6.3 trillion economy by FY30.