CEA Urges India Inc to Enhance Competitiveness Instead of Anticipating a Decline in Rupee Value
CEA Anantha Nageswaran Encourages Indian Corporates to Shift Focus on Productivity
Chief Economic Adviser Anantha Nageswaran has called on Indian businesses to prioritize productivity and competitiveness rather than depending on a depreciating rupee. As the International Monetary Fund (IMF) anticipates that India’s GDP will reach $6.8 trillion by the fiscal year 2030-31, he emphasized the necessity for investment, deregulation, and trust-based cooperation to propel economic growth.
Navigating a Stronger Currency Landscape
Nageswaran articulated that India might face the complexities of operating in a stronger currency environment, which would require the private sector to enhance its competitiveness through domestic productivity improvements. He spoke to industry leaders at a CII event, stressing that deregulation will play a crucial role in this process. Addressing the CII Annual Business Summit 2025, he noted that while the IMF has forecasted India’s economy to expand to $6.8 trillion, it implicitly predicts an annual rupee depreciation of 0.5% to 0.8%.
Acknowledging Historical Context
The chief economic adviser advised the gathered business leaders not to assume the Indian rupee would continue to weaken, as it has in past decades, citing global trends as a framework for this outlook. Analysts have historically mentioned that post the rupee’s devaluation in 1991, India has experienced substantial economic progress, focusing on a long-term strategy of allowing a gradual depreciation of the rupee while managing short-term volatility. A weaker rupee generally facilitates a competitive edge for exports on the world stage.
Efforts to Stabilize the Currency
In a bid to stabilize the currency and mitigate excessive fluctuations, the Reserve Bank of India intervened by selling a record net amount of $34.5 billion during FY25, resulting in a total rupee depreciation of 2.4% throughout the financial year. Nageswaran urged industry players to significantly increase capital expenditures and adjust worker compensation to align with profit growth, aiming for over 6.5% economic growth to transition India into a developed nation by 2047.
The Virtuous Cycle of Investment
Highlighting the need for a virtuous investment cycle, he explained that increased investments would not only expand production capacity but also generate more jobs with enhanced compensation, fostering higher household savings. “Our current challenge is that while profitability growth has outpaced capital formation, it has not kept pace with compensation growth, including hiring, which is unsustainable for the next 25 to 30 years,” he remarked. This predicament is typically observed in developed nations, not in developing countries like India.
Balanced Resource Allocation is Key
Nageswaran underscored the importance of strategically balancing capital and labor deployment. He pointed out that India needs substantial investments in capacity creation, particularly in infrastructure, in the next quarter-century. Addressing the capital requirements of India will necessitate steady increases in household incomes and savings, he noted, which can occur with rising earnings.
Streamlining Regulations for Enhanced Productivity
He also stressed the significance of alleviating the regulatory burden to boost capital productivity, emphasizing that a relationship of trust must be cultivated between the government and the private sector to achieve this. “A notable portion of regulatory overreach often stems from a lack of reciprocal trust from the private sector. Therefore, while the ‘what’ of deregulation is apparent, determining ‘how’ to implement it effectively poses challenges, as deregulation can sometimes inadvertently lead to misuse,” he stated. To realize the vision of Viksit Bharat, a trust-based collaborative effort is essential.
