Former Chief Economic Adviser Arvind Subramanian has called for a significant shift in India's economic leadership to rebuild investor confidence. He argues that the nation's current economic pressures stem not just from global factors but also from deeper structural issues related to growth, governance, and the overall investment climate.
Addressing Economic Uncertainty and the Rupee's Decline
Subramanian highlighted the rupee's sharp decline and ongoing economic challenges, questioning the clarity of economic direction. He noted that the rupee's weakness predates recent geopolitical events, suggesting that markets have been signaling concerns about India's medium-term growth prospects for some time, despite significant intervention from the Reserve Bank of India.
He drew parallels to past periods of economic stress, emphasizing the need for visible and decisive leadership capable of reassuring both markets and investors. "The need of the hour is for a credible interlocutor with a clear message, like a Mario Draghi who said 'we will do whatever it takes,'" Subramanian stated.
The Challenge of Weak Private Investment
A central concern identified by Subramanian is the substantial drop in private corporate investment. Peaking at 17% of GDP in the early 2000s, it now stands at half that figure, with a brief post-pandemic recovery having faded. This decline, he argues, is a critical impediment to sustained economic growth.
Governance Practices and Investor Trust
While acknowledging government reforms—including GST simplification, labour-law changes, foreign investment liberalisation, and new trade agreements—Subramanian contends these haven't fully reassured investors. He distinguished between policy actions on paper that affect the costs of doing business and the deeper "instincts" of government that influence the risks of doing business on the ground.
He listed several problematic governance practices:
- Favouring certain corporate groups
- Uneven resource allocation
- Aggressive use of state institutions
- Arbitrary tax enforcement
- Weakening federal decision-making structures
According to Subramanian, addressing these concerns requires more than just additional policy announcements.
The Path Forward: Personnel Change and New Ideas
To fundamentally address these issues and signal a departure from problematic habits, Subramanian proposed a change in personnel at ministerial, technocratic, and bureaucratic levels. He believes this is a crucial step to restore credibility and trust.
"Changing personnel at ministerial, technocratic, and bureaucratic levels is one — perhaps the only — way the government could signal a departure from these instincts and habits," he wrote.
He further emphasized the need to recruit officials valued for their "quality, independence, and new ideas," rather than solely for loyalty and "cheerleading."
Consequences of Inaction
Subramanian concluded with a stark warning: a failure to embrace such changes, leading to "sameness of personnel and staleness of ideas," could prolong India's economic challenges. He asserted that the Indian economy would continue to pay the price unless these fundamental shifts in leadership and approach are made.