'State-led labour reforms can lift growth potential'

Rural demand is strong, reforms are advancing at the state level, and sustained gains will depend on productivity, competitiveness and outcome-driven public spending, chief economic adviser VAnantha Nageswaran tells Prasanta Sahu & KG Narendranath.

- V ANANTHA NAGESWARAN, CHIEF ECONOMIC ADVISER

Excerpts:How strong and durable is the consumption booster via GST and income tax reliefs? Rural consumption revival seems fleeting and weak...

The concern about rural consumption is not borne out by data. In fact, rural consumption is doing better than urban consumption. Indicators such as tractor sales, two-wheelers, and even four-wheeler sales, show stronger performance in rural areas. So, the notion that rural demand is weak is outdated.

As for the tax relief, its impact is largely a one-off effect, lasting about a year before becoming part of the baseline. People adjust their spending accordingly. Ultimately, sustained consumption growth depends on income growth, which in turn comes from employment generation. That is where the focus needs to be.

Tax buoyancy has dipped due to concessions, and the gap in tax-to-GDP ratio seems to be widening...