From reforming the skilling ecosystem to strengthening domestic supply chains, what should the next round of reforms look like? In an exclusive interaction with Dipak Mondal and Pushpita Dey, Arvind Virmani, economist and full-time Member of NITI Aayog, speaks at length on the fiscal, financial and structural measures India must pursue to sustain high growth. Excerpts:
Recent finance ministry data shows advanced GDP growth at 7.4% for FY26, compared to 6.5% last year. How do you assess India’s current economic situation amid volatile global conditions?
Uncertainty is the single biggest factor affecting economies today. From our perspective, however, the big story is that India has handled this uncertainty extremely well and managed to maintain growth momentum. There were multiple shocks. Shocks do occur— that is why I always give a range, not a point estimate. This shock was unusual because it largely originated from a single source, which is unprecedented. Managing it required careful macroeconomic handling, and we have done that effectively. A demand shock is countered through fiscal or monetary measures; other shocks require different responses. The 7.4% growth outcome reflects strong macroeconomic management during FY26 so far, covering April to December.
Does this make the finance minister’s job easier while framing the next Budget?
The Budget is forward-looking and meant for the next year. The challenge is not whether growth is higher now, but whether we remain prepared for future shocks—domestic or external.
Preparedness means maintaining adequate fiscal and policy space and the agility to respond quickly. A higher base always makes growth harder—that is simply the nature of growth. The positive development today is that reforms are raising India’s underlying growth rate itself, which helps us manage uncertainty better.
This Budget comes after major direct tax and GST reforms. What should be the government’s focus this year?
There are three taxes under the Centre’s control. Media reports suggest the finance minister intends to focus on customs tariff reform, which is a very positive step. A well-designed tariff structure can strengthen domestic supply chains. International supply chain issues are already being addressed through free trade agreements, whose purpose is to integrate India into global value chains—something we missed out on decades ago. But customs duties play a critical role in developing domestic supply chains. Beyond taxation and expenditure, the financial sector—also under the finance ministry—will be another key focus area.
Apart from taxes, are there other areas the Budget should focus on?
In the last Budget, the finance minister clearly distinguished between financial and non-financial regulations. Non-financial reforms are being handled separately. Financial regulation falls under the finance ministry, although much of the work is delegated to regulators such as RBI and SEBI. Given this shared responsibility, a review of financial regulation and possible policy signals from the finance ministry would be important.
Many economists say infrastructure capex multipliers are declining and the government should revisit its strategy. Your view?
Before the last Budget, capital expenditure was growing at nearly 25% annually. I had then suggested it was time to take stock and not mechanically continue spending in the same areas. Evaluation is essential. The issue now is identifying gaps in public goods and public infrastructure and directing spending accordingly. Earlier, the focus was on increasing the capital share of the Budget. Now, it is about where that capital is deployed.
Gross capital formation stands at around 31% of GDP. Is a target of 36–37% realistic?
The real issue is productivity. For 7% growth with an ICOR (Incremental Capital-Output Ratio) of 4, you need only 28% investment. For 7.5% growth, around 32%. Structural—or policy—reforms are meant to improve productivity. With the pace of reforms accelerating, my estimates of productivity have gone up. That means higher growth can be achieved without pushing investment ratios to 36–37%. We should focus less on arbitrary numbers and more on ensuring reforms translate into productivity gains.
The IMF has flagged gaps in India’s data systems. Are GDP numbers overstated?
That is not how I read it. India is a lower-middle-income country, and statistical systems improve progressively. Compared to countries at a similar income level, India’s data systems are far better.New indices and datasets will be released soon. GDP estimation requires primary data, and improvements take time.
Employment is rising, but wages lag inflation. How can fiscal policy ensure job quality?
Wages depend on skills. Data shows that 50% of children completing primary school cannot read. What wages can they command in a modern economy? India’s skilling levels are low even for its income level. If we want to become Viksit, the quality of education, skilling and job training must improve manifold. Wages rise with productivity, not declarations. Credentialism—having degrees without skills—does not work.
What is your view on income security and working conditions for gig workers?
Around 58% of India’s workforce is self-employed. Gig workers fall between self-employment and regular employment and cannot expect the same protections as regular employees.
Among the self-employed, craftsmen show the highest real income growth because they have skills in demand. Income follows skills, not credentials. Only about 54% of BA graduates are employable, while skilled workers often earn more.
What are the top reforms you would like to see in the Budget?
At the Centre, customs tariff reform is critical to promoting domestic supply chains. At the state and local levels, reforms in land, electricity pricing, basic education, skilling, sanitation and sewage systems are essential. Development cannot happen only at the top—AI and quantum technologies matter, but a country becomes developed only when the base of the pyramid is strong.