The tax exemptions announced in the Union Budget 2025-26 aim not only to increase disposable income and encourage household savings and spending, but also to enable the private sector to take the lead in capital formation, said V Anantha Nageswaran, Chief Economic Advisor (CEA).

Addressing a session on ‘South India’s Global Economic Competitiveness’ session, organised by the Confederation of Indian Industry (CII), Nageswaran stated that while the government has been driving investment-led growth for the past five years, it is now time for businesses to step up hiring, increase wages, and invest in key sectors to ensure long-term economic sustainability.

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“The objective of tax cuts is not just to put more money in the hands of consumers but also to create greater demand visibility for businesses. Weak consumption has often been cited as a key reason for sluggish private investments, and the government has addressed this by taking measures to boost spending capacity. A strong demand cycle will, in turn, encourage the private sector to ramp up capital investments, reducing reliance on government-led spending,” he stated.

Focus area

While much of the economic discourse focuses on what the government can do for businesses, he said it is equally important to assess what businesses can do for national development. “A key area of focus is balancing capital investment with labour deployment. The post-pandemic period has seen a sharp rise in corporate profitability, but wage growth and employment generation must keep pace to sustain demand.

The CEA further stated that if the country neglects wage growth and employment generation, it risks economic instability. “Just as Henry Ford understood that his workers needed fair wages to buy the cars they produced, Indian businesses must strike a balance between profitability, labour deployment and capital investment,” he added.

One key area where India — and the South — lags behind is research & development. Despite Southern States contributing 28 per cent of national R&D output, their spending on R&D remains below 0.8 per cent of Gross State Domestic Product (GSDP). This underinvestment is reflective of a larger national trend, where India lags behind other economies in fostering a robust innovation ecosystem.

“The private sector must start viewing R&D as an investment rather than an expenditure,” the CEA urged, highlighting that academic contributions to R&D in India are significantly lower than in several leading economies. Strengthening industry-academia collaboration is essential to bridge this gap and ensure long-term innovation-driven competitiveness.

Nageswaran also highlighted that competitiveness is not just about economic output but also about social wellbeing.

Southern growth

Southern India has consistently outperformed the rest of the country in economic and social indicators, and now, it must benchmark itself against global standards. “The South is well-positioned to lead India into a mystic and majestic Viksit Bharat,” he added.

Strong manufacturing clusters, skilled workforce development, higher R&D investments, and balanced capital-labour strategies will be crucial for maintaining and accelerating growth, he pointed out.

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Published on February 10, 2025