Former Chief Economic Adviser Krishnamurthy V Subramanian stated that India could achieve 8-9% growth by prioritizing reforms in land, labor, and capital markets. Achieving this target relies on increasing private investment, which currently trails historical peaks. For investors, these structural changes could lower business costs and help sustain long-term economic momentum.
India has the potential to sustain an economic growth rate of 8-9% if the country accelerates specific structural reforms, according to former Chief Economic Adviser Krishnamurthy V Subramanian. Speaking on the path toward higher growth, he highlighted that while macroeconomic stability has successfully anchored the economy at a 7% growth trajectory, further institutional changes are necessary to bridge the gap to higher figures.
Moving From Public to Private Investment
A critical factor in reaching the 9% target is the recovery of private investment. Subramanian noted that in past periods when India achieved over 8% growth, private investment accounted for more than 30% of the country's GDP. Currently, that figure hovers around 22-23%. While recent government spending on infrastructure has created a foundation for growth and the banking sector is in a healthier position to fund new projects, the next phase of expansion requires private capital to scale up significantly.
Institutional Reforms and Competitiveness
The former CEA emphasized that lowering the cost of doing business and financing is essential for attracting both domestic and foreign capital. He advocated for a comprehensive overhaul of factor markets, specifically targeting land, labor, and capital. Additionally, he identified reforms within the judiciary and bureaucracy as foundational steps. By improving the enforceability of contracts, India can compete more effectively with other nations to attract long-term global capital, much like companies compete for customers in a market.
Inflation and External Resilience
Addressing macroeconomic challenges, Subramanian pointed to food inflation—often driven by unpredictable monsoon patterns—as a recurring risk. He suggested that if inflation expectations remain well-contained, the Reserve Bank of India could afford to tolerate temporary price spikes in food without aggressive interest rate intervention. On the external front, while India’s foreign exchange reserves provide a buffer against global shocks, he stressed that structural reforms are far more important than short-term defensive measures for building long-term economic resilience.
Investors looking at the broader economy should monitor developments in land and labor policy, as these are the core areas identified for unlocking higher private investment. Additionally, tracking the trend of private capital expenditure relative to GDP will be a key signal for whether the economy is moving toward the anticipated 9% growth potential. While global factors like the U.S. Federal Reserve’s policy cycle affect foreign inflows, the focus remains on domestic institutional progress as the primary driver for sustained prosperity.