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V. Anantha Nageswaran, Chief Economic Advisor (CEA) to the Government of India, has expressed confidence that India’s GDP will grow by 7% in the second half of the current financial year (FY). He noted that the 7.8% GDP growth recorded in the previous two quarters had already been anticipated.

According to Nageswaran, India’s strong post-pandemic growth is not an anomaly but the outcome of several reform-oriented economic policies implemented over the past seven to eight years. He was speaking at a special session titled “India@3: The Road to Becoming the World’s Third Largest Economy”, organized by the MCCI in Kolkata in the third week of September.

He explained that around 60% of India’s economic growth comes from consumption, 21% from capital formation, and about 20% each from exports and imports. After the pandemic, urban demand initially drove consumption, while rural demand lagged. However, this trend has now reversed, with rural demand outpacing urban consumption growth.

Immediate factors behind high GDP growth

Nageswaran identified key factors likely to sustain growth in the coming quarters: income tax relief, incentive schemes for entrepreneurs, rationalization of GST rates, and low inflation.

The issue of GST rationalization generated considerable interest among the audience. When asked whether the impact of GST rate cuts would be short-lived or long-term, the CEA asserted that the effects would be lasting.

However, several economists have voiced doubts. Arun Kumar, former Professor of Economics at Jawaharlal Nehru University, argued—echoing discussions on social media—that GST rate cuts could have adverse effects. According to him, lower GST rates would primarily benefit the organized sector, shifting demand away from the unorganized sector, where nearly 92% of India’s workforce is employed. As a result, income levels for a large segment of the population might decline, shrinking overall market demand—a situation reminiscent of the initial phase following GST’s introduction eight years ago.

When questioned on this, Nageswaran dismissed the concern, saying that the notion that GST cuts would hurt the unorganized sector was “not a well-thought-out idea,” and maintained that all sections of Indians would ultimately benefit.

The CEA was also asked about the mixed outcomes of the Make in India initiative. Ten years after its launch, the share of manufacturing in GDP has fallen, and many workers have moved from industry back to agriculture. Nageswaran acknowledged that while Make in India had succeeded in some sectors and not in others, the programme remains ongoing.

Experts’ observations

Following the announcement of GST rate cuts, Arvind Subramanian (former CEA), Abhishek Anand of the Madras Institute of Development Studies, and Josh Felman, Principal at JH Consulting, Washington, offered detailed assessments (as reported by The Economic Times, September 8).

They agreed that eliminating the 12% and 28% tax slabs is a positive step but argued that the goal of creating a “simple tax” system remains unfulfilled. They questioned whether such rate cuts could genuinely revive the economy, pointing out that persistent issues—such as valuation-based, end-use-based, and input-based rate structures—still complicate the GST framework.

Moreover, the withdrawal of Input Tax Credit (ITC) on goods like healthcare products and insurance was described as a retrograde step, likely to perpetuate cascading taxes. Hence, they concluded that these measures do not amount to a genuine reform of GST.

Subramanian also warned that the GST rate cuts could lead to a significant annual revenue loss of ₹1.5–2 lakh crore. Other experts shared similar concerns, noting that income tax reliefs and GST reductions might constrain government revenues and thereby limit public expenditure—at a time when private investment remains weak.

Additionally, several state governments, already under fiscal stress, have expressed anxiety about potential revenue losses and are expected to seek compensation from the Centre.

Given these fiscal challenges, many experts question whether GST rate cuts, income tax reliefs, and entrepreneurial incentives can indeed sustain high economic growth in the long run.