CEA V Anantha Nageswaran On Contracts In Low-Trust Societies, Why Economic Survey 2025 Talks About Ultra-Processed Foods, And Much More

In a detailed interview with 'Swarajya', Chief Economic Advisor, V Anantha Nageswaran, opened up about the current Economic Survey, India's growth prospects this decade, the post-pandemic compacts between employers and employees, and other issues.

Swarajya: Thank you for being here and thank you for speaking with Swarajya. 

I'd like to start by asking you that it’s hardly been six months since the last survey was tabled, and yet there is so much to discuss in the latest survey too. Did so much change in the last six months that we have such a detailed survey tabled for the current year also?

Dr Anantha Nageswaran: Two things, Arush: 2024 was the year of elections around the world, so much changed and there were changes of governments in many places. Along with that came changes of philosophy towards government, etc. Therefore, there is much to cover. And even from a domestic point of view, what we did in this survey was to expand on some of the themes we had explored, particularly on deregulation and also developments in the space of artificial intelligence, where technological change is happening rapidly. Those were the incremental developments we had to cover.

This survey is about 2024–25, whereas the survey published in July 2024 was about financial year 2023–24. So there is a natural incremental economic activity and policy decisions across different ministries that have to be covered in the normal course of producing an economic survey as well. These are the reasons I would say that we still could come up with a fairly voluminous survey within the space of six months.

Swarajya: Right. And then, in the preface that you have written to the survey, where you talk about “getting out of the way”, there’s a paragraph mentioning that cultures having low trust tend to have a lot of compliance burden outside the kinship group. Can you talk about that, please, and how does that work in the context of India?

Dr Anantha Nageswaran: I think this is partly inspired by the work of Joseph Henrich, The Weirdest People in the World, which I read during the pandemic years. 

In general, I think it is also what we see in practice in our societies—that we largely identify ourselves with particular groups. That is why there are kinship, community-based societies and groupings, etc. And these societies are also fairly feudal in nature. Trust is very high within the community. If it’s between two members of the same community, there’ll be a much greater level of trust rather than between a member of one community and another. That is why you require so much of contracts, certifications, attestations, declarations, notarizations, etc.

These things have evolved over time. In informal societies, where there is a lot of respect for established customs, conventions, and hierarchy within communities. 

Applying the same standards outside requires a much higher degree of trust. And that takes time to evolve. Certain social, political, and religious developments in those societies hastened the development in Western societies, but these things don’t happen at the same speed everywhere.

Swarajya: You think that you see a larger degree of it happening in the service sector as compared to, say, the agricultural sector?

Dr Anantha Nageswaran: It’s difficult for me to answer that question with any degree of precision without undertaking some sort of nationwide survey, etc. It is all anecdotal in that sense. But yes, you can talk about it anecdotally and look at a city like Bangalore, which is a melting pot, where you are interacting with a lot of strangers and not necessarily with people of the same community or kinship. 

Naturally, you can see that the level of economic activity there is much higher than in other parts. So that’s imprecise but it’s a sort of anecdotal evidence.

Swarajya: In the last fortnight, we’ve seen the US starting a sort of tariff war, or at least attempting one. And that is just one of the many headlines being made by the new team in power at the White House. Where does all this leave the global outlook, and what role does India have amidst these new rules of the game?

Dr Anantha Nageswaran: These are still very early days. Much action has happened in the last two and a half weeks since the new administration took office. The speed with which actions have been announced is making governments around the world scramble to keep pace and respond. 

It will be difficult for me to say in precise terms what the contours of the engagement for India will be, because nothing much has really happened in the Indo–US space on these kinds of actions and measures. If anything, there is a visit of the honorable Indian Prime Minister to the US, and India has multiple other engagements that are mutual win-win rather than a win-lose kind of situation.

Over the last eight to twelve years, much has happened and survived different administrations and different presidents. Even the announcements made in the budget regarding 100 per cent insurance in FDI or the promise to open up atomic energy, power generation to the private sector, and the commitment to amend the Civil Nuclear Liability Act, as well as the promise to revisit bilateral investment treaties to make them more investor-friendly—all these announcements are with India’s interests in mind. 

Removing inversion of customs duties and reducing the number of customs duty rates, etc., all these things do set up the platform for a constructive engagement with the administration and with other countries as well.

Swarajya: When we talk of other countries, we have talked about the US. I’d like to ask you how you see China’s growth arc post-COVID. At the peak of COVID, there were a lot of declarations that now there would be a China-plus-one or China would be replaced as the factory of the world. How much of that have you seen in terms of data?

Dr Anantha Nageswaran: Data will be difficult to mobilize in these areas because it is very difficult to isolate them to one factor, even if investments happen. I think we have succeeded in some areas, especially mobile phone manufacturing, where the speed with which production is now happening in India and capacity is being expanded are good signs. But let us be clear that China has taken 30 years to get to where it is today in terms of being a global manufacturing powerhouse. Companies from Western nations which have established shop there—it’s just not enough for the main product to move. A whole host of supply ecosystems have to move along with them.

Naturally, companies will first go to countries that are geographically proximate or have similar cultural and language possibilities, etc. 

India’s advantage is its size and the availability of skilled personnel, so I expect that India will see the benefits of this diversification away from China in terms of a China plus one strategy a little later than other countries. In fact, when the advantages begin to be outweighed by capacity considerations in those countries, that is when India will come into the frame for companies relocating or looking for an alternative out of China. 

But in the meantime, let’s not forget that different Western countries are also trying to induce their companies to get back to their own countries rather than go to another alternative. So there is a tendency to incentivize on-shoring rather than going for friend-shoring. 

So an enterprise or a Western company exiting China may be induced by their government to relocate their production back to their host country. We need to understand these dynamics as well. 

It is somewhat incorrect, in my view, thus, to look for quick results in this matter. My expectation is that it will come for India later, but it will be more durable.

Swarajya: In the world that is to come, would you say that we have seen the peak of globalization behind us?

Dr Anantha Nageswaran: I think so. If you take a longer sweep of history, these things happen over about 30 or 35 years. 1885 to 1914 was an era of globalization, then we had two wars and one depression between 1914 and 1945. From 1945 to 1980 was mostly state-led growth, reconstruction, and so on. Then from 1980 onwards, it was more market-led growth and globalization, outsourcing of production and services, etc., which probably lasted until about 2015, helped by technological developments like the internet and higher computing power. But now that is giving way to near-shoring, on-shoring, and supply chain security and resilience rather than supply chain efficiency and just-in-time production. It’s shifting to “just in case.”

These things come and go in cycles. Roughly one episode, one epoch lasts about one generation. Then some things reach their peak or go into excess, and some social and economic consequences come out of them. There is a backlash, and we go into a different cycle. Again, the same pattern repeats. So I think we are in the era where globalization is on the retreat as of now.

Swarajya: Now, back to the survey. The survey devotes a lot of time to small businesses. Was there a sense that in the last four or five years, this group has not been talked about that much in terms of policy discourse?

Every budget had something to say about access to finance and came up with mechanisms like the TReDS discounting platforms, mandating that large enterprises in both the public and private sectors onboard themselves onto these platforms. Then, during COVID, a specific emergency credit line guarantee scheme for small and medium enterprises was introduced, along with Mudra loans, and so on.

We also had the introduction of Section 43BH, which allowed deduction for payments made to MSMEs only in the year in which the payment is actually made, and I’m missing out on the GEMS Procurement Portal, giving preference to MSMEs, as well as the development of the Open Network Digital Commerce (ONDC), which provides a national and international market for small businesses. 

The list is impressive. It’s not about lack of policy attention but about making sure that we remove operating constraints in terms of ground-level rules, regulations, compliance, inspections, so that these initiatives have maximum effect. That is what the survey is making the point about.

Swarajya: Would you say that when we talk of compliance and rules and regulations, a lot of focus tends to go on the center, but the major burden comes from the states in many cases?

Dr Anantha Nageswaran: Yes, that’s the truth. That’s exactly what we have said in the economic survey. The compliance burdens, rules, regulations, and inspections are done at the state level. That is why we feel that the action has to be there much more than in the center. 

Yes, there are some certification bodies and standard-setting bodies, but much of the operating-level rules and regulations regarding land and building usage, labor regulations, etc., are at the state level. That is why we feel if the practices around the country, even to begin with, converge with the best state in the country in that aspect—and in different aspects, different states are doing well—if all states converge to the best standard, that itself will make a huge level shift in terms of boosting economic activity in the country.

Swarajya: The Survey speaks about what the government should or should not do when it comes to large and medium and small businesses. What do you expect from the businesses now, now that a certain budget has been given and is out in the open?

Dr Anantha Nageswaran: First of all, I would probably disagree with you when you said the survey talks only about what the governments should be doing. In fact, the survey is very clear about the asks of the private sector. And we did that in the July 2024 survey as well. Apart from the fact that capital formation is something the private sector can undertake at a faster clip, the other issues we wrote about in July and again this time as well are that the hiring and compensation practices post-COVID need to be reexamined because they may have contributed significantly to lower consumption growth.

Another dimension is research and development expenditure: viewing it more as an investment than as an expenditure, taking a medium-term view, and introducing new technologies such as artificial intelligence in ways that are labor-augmenting rather than labor-displacing. 

We also want the private sector to focus on mental health and physical health of India’s youth. Part of that comes from consumption of ultra-processed foods, so front-of-pack labeling that informs consumers what they are putting inside their mouths and what kind of impact it has not just on physical health but also on mental health. And the workplace culture itself can have a huge impact on mental health. These are the various asks we have of the private sector, which have been emphasized in both the July and January economic surveys.

Swarajya: In fact, this might be the first Survey which goes on record to talk about ultra-processed foods. Where did that come from?

Dr Anantha Nageswaran: We have been reading research, and mental health is something that we have always felt goes unrecorded or unobserved. It has a big impact on productivity because it is long-lasting and not easily detected. People don’t come forward about it, whereas if you are physically unwell, you immediately go to a doctor. But with mental health, it may not even be possible that people detect it themselves. They may not establish the causal factors, but it’s all out there in surveys and also in the loneliness that COVID brought about.

That is why we decided to focus on mental health in both the July 2024 and January 2025 economic surveys. We think, across the world—and India is no exception—it is a silent epidemic.

Swarajya: Do you think the larger reforms that were brought about like the IBC and the GST, nine or ten years down the line, need a renewed focus on a sort of active feedback loop?

Dr Anantha Nageswaran: I think that is true for any policy decision, whether it is even the Land Acquisition Act of 2013, etc. A certain natural mid-course review or periodic review is needed to see whether they are delivering on the objectives with which they were enacted or if they can be done more efficiently. Over a period, a lot of things get added on in an ad hoc manner. So some sort of exhaustive or comprehensive stock-taking would be good.

The analogy is how households, during certain festival times, take an inventory of everything inside the house and decide what to keep and what to discard. A similar approach needs to be adopted with respect to all policies. I wouldn’t necessarily single out IBC or GST; it would be a good routine to periodically take stock of their positive impacts, unanticipated adverse impacts, and any ad hoc measures that got introduced along the way. Then decide whether they should be part of the main legislation or remain specific responses for specific circumstances. This kind of review and spring-cleaning should be part of policy-making on a regular basis.

Swarajya: Right. And just to go on the growth part of it, how far or how close do you think India is to an 8 per cent growth rate?

Dr Anantha Nageswaran: We need to have a context in mind. I think we cannot be talking about 8 per cent growth in a world where other countries are struggling to grow at even 2 per cent. It is the growth differential that matters. When we were growing at 8 per cent and everybody else was growing at 5 per cent, the gap was only 3 per cent. If we can grow at 6.5-7 per cent while the rest of the world is struggling to grow between 2 per cent and 3 per cent, the growth gap is 4 per cent. So it’s that growth differential that tells you about our performance.

What I’m saying is 8 per cent cannot happen in isolation from what’s happening in the rest of the world. And the last 30 years have been different; globalization, exports, flow of investments, all those are becoming scarce, and they will naturally have an impact on our growth outcomes. 

Right now, the important thing is not so much the outcome as what we can do domestically to give ourselves the best chance of hitting higher growth rates. That is what the survey is about.

Swarajya: Lastly, on that note, taking from what you just said, how much effort do you think goes into just going from, say, 6.4 to 6.5 or 6.6?

Dr Anantha Nageswaran: I think the magnitudes you have chosen are very small. It’s more important to be able to say, “How much effort goes into going from 6.4 to 7?” because 6.4 to 6.5 is just statistical noise. What would take us sustainably above 7 per cent from around 6.5 per cent? That is what the last two economic surveys have focused on. 

Deregulation is important. Agriculture can add another 0.5-0.8 per cent to GDP growth if the growth rate we see in allied agriculture activities can be replicated in traditional crops. That’s why we called agriculture a “sector of the future.”

Higher education also needs to become much more competitive and market-friendly. Then we must focus on mental and physical health of India’s demographic youth. These are all ways we can raise the average level of GDP growth from around 6.5-7 per cent or beyond.

Swarajya: I had one more question. This has been a hot topic in the last few months regarding the work week and pay disparity between a freshly employed person in the IT sector versus the executive salary. There was a part in the economic survey that caught my eye. It compared how Japan grew and succeeded industrially. You mentioned that corporate profit grew to a 15-year high around 22 per cent, but the employment growth was only 1.5 per cent and employment expense in the sector also decreased. Was that Japan example a hint that this disparity should come down?

Dr Anantha Nageswaran: It was not any subtle hint; it was pretty open. Basically, we wanted to say there needs to be a better compact. Post-COVID, there were reasons both companies and workers found it convenient to have flexible arrangements, but that could also lead to lower compensation and lower perks, such as gratuity or retirement and leave benefits. 

From the corporate perspective, having a flexible workforce can prevent accumulation of skills and institutional knowledge. Both sides need to understand this is not a win-win solution—ultimately it can be lose-lose. That is why we spoke about needing a better balance between capital deployment and labor employment, between the capital share of income and labor share of income, and a relook at the hiring and compensation practices in the corporate sector.

Swarajya: Thank you. I think that was all that we had. Thank you for your time.