Economic Survey: India Must Shift to Entrepreneurial State

Syllabus: GS3/Economy

Context

• The Economic Survey 2025-26 borrows a phrase from Mariana Mazzucato to describe what Indian governance must become: an Entrepreneurial State.

What is an Entrepreneurial State?

• It is a deeper shift towards entrepreneurial policymaking under uncertainty: a state that can act before certainty emerges, structures risk rather than avoiding it, learns systematically from experimentation, and corrects course without paralysis.
  • It does not mean state capitalism, nor does it imply the commercialisation of government functions or privileging private interests.
• Key Elements: 
  • Bounded Experimentation: Creating institutional “safe spaces” where innovation is permitted with accountable review mechanisms.
  • Regulatory Sandboxes: Extending beyond fintech to sectors like labour and environmental regulation to encourage innovation.
  • Legal Protection for Good-Faith Decisions: Ensuring officials can innovate without fear of punitive repercussions.
  • Independent Ex-post Review Mechanisms: Assessing decisions based on the information available at the time rather than only based on outcomes.
• India has already begun to see elements of this approach in practice: from the creation of mission-mode platforms in semiconductors and green hydrogen, to the restructuring of public procurement to enable first-of-a-kind domestic innovation.

Challenges in Current Approach

• The chapter highlights structural and behavioural issues that limit performance, including:
  • Risk Aversion: Bureaucratic culture often prioritizes procedural compliance over judgement and experimentation.
  • Hysteresis and Permanence: Temporary policies often become permanent, raising the stakes and disincentivizing experimentation.
  • Accountability Systems: Retrospective scrutiny (through audits, judicial review, etc.) discourages innovative or adaptive actions.

Need for Entrepreneurial State

• Impact of Global Political Scenario: A lingering concern that the negative effects of the ongoing global political and economic turmoil may manifest with a lag. 
• Trade Wars: As strategic rivalry intensifies, trade turns coercive, sanctions multiply, supply chains are politically realigned, and financial shocks spread faster across borders amid weaker institutional buffers.
  • Policy is increasingly nationalised, forcing countries to choose more sharply between autonomy, growth, and stability.
• Global Financial Crisis: The risk of a systemic shock cascade in which financial, technological, and geopolitical stresses amplify one another rather than unfolding independently.
  • While this remains a lower-probability scenario, its consequences would be significantly asymmetric. 
  • The macroeconomic consequences could be worse than those of the 2008 global financial crisis.
• The three scenarios pose a common risk for India: disruption of capital flows and the consequent impact on the rupee.

Conclusion

• State capacity is not just administrative resources, it’s about incentive structures, risk-taking capacity, and governance culture.
• The chapter moves beyond traditional policy analysis to emphasize institutional design and adaptive governance.
• India’s economic strategy must balance stability and democratic legitimacy with entrepreneurial action and institutional innovation.

Source: PIB