Building a New Growth Strategy for India: Beyond the 1991 Reform Paradigm

Syllabus: GS3/Economy

Context

• Amid rising geopolitical tensions, deglobalisation, supply-chain fragmentation, and debates on India’s growth model, economists are reassessing whether the 1991 liberalisation framework remains adequate for India’s development aspirations.

About India’s Economic Strategy

• India’s economic reforms of 1991 marked a decisive shift from a state-led development model to a liberalised, market-oriented economy. 
• Trade openness, foreign investment, deregulation, and integration with global markets became the central pillars of growth.
• The strategy delivered important gains:
  • GDP expanded nearly 15 times since 1991.
  • Poverty levels declined significantly.
  • India emerged as a major services exporter.
  • Foreign exchange reserves and global economic integration improved.
• However, unlike China, India did not develop a comparable manufacturing base or technological ecosystem. 
• China combined trade openness with aggressive industrial development, technology acquisition, and domestic capability creation while India integrated into global markets largely as a services provider and consumer market.

Why India Needs a New Economic Strategy?

• Changing Nature of Globalisation: The era of hyper-globalisation is receding. Trade wars, strategic tariffs, and technology restrictions have weakened the WTO-led global order.
  • The US-China rivalry is reshaping global supply chains. Nations are increasingly prioritising economic security and industrial self-reliance.
  • The IMF acknowledges the growing role of industrial policy and strategic state intervention in economic development.
• Weak Manufacturing Base: India’s manufacturing share in GDP has remained around 15–17%, far below East Asian economies.
  • India-China trade deficit exceeded $100 billion in 2025.
  • India imported approximately $114 billion worth of goods from China, largely manufactured products and high-tech equipment.
  • It exposes vulnerabilities in strategic sectors such as electronics, semiconductors, renewable energy equipment, and defence.
• Slow Growth in Incomes and Employment: Income growth for ordinary citizens has been less transformative while GDP growth has been impressive.
  • China’s per capita income has increased nearly 38 times since 1991.
  • India’s per capita income has increased about eight times.
• Need for Indigenous Technological Capability: India spends only around 0.65% of GDP on Research and Development (R&D), significantly lower than major innovation-driven economies.
  • Low investment in innovation limits technological self-reliance, high-value manufacturing, and global competitiveness.
• Demand Constraints in the Domestic Economy: Weak purchasing power among farmers, workers, and small entrepreneurs restricts domestic demand.
  • Without broad-based income growth, consumption remains concentrated at the premium end, private investment slows, and economic inequality widens.

Current Efforts & Initiatives Supporting a New Economic Strategy

• Production Linked Incentive (PLI) Scheme: Encourages domestic manufacturing in sectors such as electronics, pharmaceuticals, telecom equipment, solar modules, and automobiles.
  • Seeks to integrate India into high-value global production networks.
• Atmanirbhar Bharat Abhiyan: Focuses on self-reliance in critical sectors, and promotes domestic production while remaining globally connected.
• National Semiconductor Mission: Supports semiconductor fabrication, packaging, and design ecosystems, and reduces dependence on imported chips.
• Startup India and Deep-Tech Ecosystem: Encourages innovation in AI, biotechnology, space technology, and advanced manufacturing.
• PM Gati Shakti and National Logistics Policy: Improve infrastructure efficiency, and reduce logistics costs and enhance industrial competitiveness.
• Digital Public Infrastructure (DPI): UPI, Aadhaar, DigiLocker, and ONDC create a foundation for innovation and productivity growth.

Way Forward: How India Can Build a New Growth Strategy?

• Build Domestic Industrial Depth: India needs to move beyond assembly and develop complete manufacturing ecosystems.
  • Focus areas  are electronics, semiconductors, defence production, green technologies, and advanced machinery.
• Increase R&D Investment: India should aim to raise R&D expenditure to at least 2% of GDP over time.
  • Measures include tax incentives for innovation, industry-university collaboration, venture capital support for deep-tech startups, and pension fund participation in innovation financing.
• Expand Domestic Demand: Growth needs to be driven by rising incomes. It requires higher agricultural productivity, better wage enforcement, skill development, and stronger MSMEs.
  • A larger domestic market can become a sustainable engine of growth.
• Promote Planned Urbanisation: New cities and growth centres can reduce pressure on existing metros, generate construction and manufacturing jobs, and improve productivity through better infrastructure.
  • Examples such as Amaravati’s land-pooling model offer useful lessons.
• Invest in Human Capital: India’s demographic dividend can become an economic advantage only through quality schooling, technical education, apprenticeships, and industry-linked skill development.
  • The goal should be to create pathways for youth to ‘earn and learn’.
• Strengthen Institutions and Governance: Transparent political funding, predictable regulation, contract enforcement, and improved ease of doing business are essential for long-term investment and innovation.

Source: HT