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Picture Courtesy: https://indianexpress.com/article/business/economy/deregulation-to-be-a-big-theme-in-upcoming-economic-survey-cea-9709248/
The Chief Economic Advisor stated that Deregulation will be a major theme in the upcoming Economic Survey for 2024-25, which will be presented before the FY26 Budget.
Deregulation is the removal or reduction of government controls on industries or sectors to increase market competition, which can improve consumer product and service quality.
Deregulation can boost economic growth by increasing competition, minimizing business barriers, and promoting innovation. It also has the potential to improve gender equality and address challenges to labor force participation. However, it must be carefully balanced to avoid exploitation and protect consumers.
"Creeping informalisation" of the workforceIt refers to the increasing trend of hiring contract workers rather than permanent employees. This was started after the COVID-19 pandemic, and has resulted in stagnant wage growth that has not kept pace with inflation. This practice has resulted in lower job security and spending power for workers. |
He highlighted that wage growth has not kept up with inflation, even though corporate profits have quadrupled over the past four years.
He stressed that businesses need to adjust the wage structure to promote growth powered by consumption.
Economic growth will be hampered by a self-destructive cycle of low savings and consumption if wage growth keeps falling behind inflation.
He underlined the importance of transforming micro, small, and medium-sized enterprises (MSMEs) into medium and large businesses. To achieve this, India should learn from the success of nations such as Germany and Switzerland.
He criticized the "tyranny of concessions," which allows businesses to remain small to enjoy certain benefits. Breaking this cycle and allowing MSMEs to grow will greatly contribute to increasing the manufacturing share of GDP.
The CEA stated that there are 118 state-level restrictions for women in certain jobs, which is out of date, especially considering that women succeed in traditionally male-dominated fields such as defense and aviation.
He advocates for policy changes to increase job opportunities for women, especially in industries that are traditionally considered "risky" for female workers.
Despite a slowdown in Q2 FY24, he projected a growth rate of 6.5-7% for FY25. Economic activity in several sectors has improved, and GDP growth is expected to accelerate in the next two quarters, supporting India in meeting its growth target for FY25.
He acknowledged that the 5.4% GDP growth rate in the second quarter of FY24 could be related to factors such as religious festivals, excess monsoon rainfall, and other long-standing issues.
He stated that this estimate is subject to revision and could be increased. If the economy grows at a 7% rate over the next two quarters, the FY25 growth target of 6.5-7% remains achievable.
The CEA emphasized the importance of the private sector and the need to strike the right balance between capital-intensive and labour-intensive growth to achieve long-term growth.
He advocated for wage restructuring, the expansion of MSMEs, and deregulation to boost economic activity and consumption.
The CEA stated that certain industries, such as finance and railways, require regulation to ensure affordability, accessibility, and consumer trust.
SEBI, for example, regulates Indian financial markets, whereas the government controls railways to ensure that the public has access to affordable services.
While deregulation is beneficial in many industries, some sectors require specific frameworks for transparency and consumer protection.
The 2024-25 Economic Survey to concentrate on matters such as wage differences, deregulation, and MSME expansion to promote inclusive and sustainable growth. While the Indian economy faces challenges such as informalization and low consumption, the CEA remains optimistic that timely reforms can promote a more competitive market and boost economic growth.
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PRACTICE QUESTION Q.Critically analyze the role of deregulation in promoting economic growth. (150 words) |
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