Rethinking India’s Economic Strategy

India’s economic reforms of 1991 marked a historic transition from a state-led, protectionist economy to a liberalised and market-oriented system. Policies promoting trade openness, foreign investment, deregulation, and integration with global markets became the foundation of India's growth strategy.

These reforms produced significant achievements. India's GDP expanded nearly fifteen times, poverty declined substantially, foreign exchange reserves strengthened, and the country emerged as a major exporter of services. However, unlike China, India did not develop a strong manufacturing base or indigenous technological ecosystem. While China combined openness with industrial policy and technology acquisition, India integrated into the global economy primarily as a services hub and consumer market.

Why Does India Need a New Economic Strategy?

Changing Nature of Globalisation

The era of hyper-globalisation is gradually giving way to a more fragmented global order. Trade wars, strategic tariffs, supply-chain disruptions, and technological restrictions have weakened the traditional WTO-led framework of international trade.

The growing US–China rivalry has encouraged countries to prioritise economic security, resilient supply chains, and industrial self-reliance. Even institutions such as the International Monetary Fund (IMF) increasingly recognise the importance of industrial policy and strategic state intervention in economic development.

Weak Manufacturing Base

India's manufacturing sector contributes only around 15–17% of GDP, considerably lower than the levels achieved by East Asian economies.

The country recorded a trade deficit exceeding USD 100 billion with China in 2025, importing nearly USD 114 billion worth of manufactured goods and high-technology products. This dependence creates vulnerabilities in strategic sectors such as electronics, semiconductors, renewable energy equipment, and defence manufacturing.

Slow Growth in Incomes and Employment

Although India's GDP has grown rapidly, income growth for ordinary citizens has been relatively modest. Since 1991, China's per capita income has increased nearly thirty-eight times, whereas India's has grown only about eight times.

This disparity highlights the need for employment-intensive growth that benefits a broader section of society rather than relying solely on aggregate GDP expansion.

Need for Indigenous Technological Capability

India spends only about 0.65% of its GDP on research and development (R&D), which is significantly lower than major innovation-driven economies.

Low investment in innovation restricts technological self-reliance, limits high-value manufacturing, and reduces India's competitiveness in emerging sectors such as artificial intelligence, semiconductors, biotechnology, and advanced materials.

Demand Constraints in the Domestic Economy

Weak purchasing power among farmers, workers, and small entrepreneurs constrains domestic demand. As a result, consumption remains concentrated among higher-income groups, private investment slows, and economic inequality widens.

Broad-based income growth is therefore essential for creating a sustainable domestic market capable of supporting long-term economic expansion.

Current Initiatives Supporting a New Economic Strategy

Production Linked Incentive (PLI) Scheme

The PLI Scheme promotes domestic manufacturing in sectors such as electronics, pharmaceuticals, telecom equipment, solar modules, and automobiles, with the objective of integrating India into global value chains and reducing import dependence.

Atmanirbhar Bharat Abhiyan

The Atmanirbhar Bharat initiative seeks to strengthen self-reliance in critical sectors while maintaining engagement with the global economy. It emphasises domestic production, resilient supply chains, and strategic economic autonomy.

National Semiconductor Mission

The mission aims to develop indigenous capabilities in semiconductor fabrication, packaging, and design, thereby reducing India's dependence on imported chips and supporting the digital economy.

Startup India and the Deep-Tech Ecosystem

Government support for startups has encouraged innovation in artificial intelligence, biotechnology, space technology, fintech, and advanced manufacturing, helping to build a knowledge-based economy.

PM Gati Shakti and National Logistics Policy

These initiatives focus on improving infrastructure connectivity, reducing logistics costs, and enhancing India's industrial competitiveness through integrated planning and efficient transport networks.

Digital Public Infrastructure (DPI)

Platforms such as UPI, Aadhaar, DigiLocker, and ONDC have created a robust digital ecosystem that promotes financial inclusion, innovation, productivity, and ease of doing business.

Way Forward: Building a New Growth Strategy

Building Domestic Industrial Depth

India must move beyond simple assembly operations and create comprehensive manufacturing ecosystems. Strategic sectors such as electronics, semiconductors, defence equipment, green technologies, and advanced machinery require stronger domestic capabilities and deeper value chains.

Increasing Investment in Research and Development

India should gradually increase R&D expenditure to at least 2% of GDP. This requires tax incentives for innovation, stronger collaboration between industry and academic institutions, greater venture capital support for deep-tech startups, and participation of long-term institutional investors such as pension funds.

Expanding Domestic Demand

Sustainable growth depends on rising incomes across all sections of society. Higher agricultural productivity, better wage growth, skill development, and stronger MSMEs can expand domestic demand and create a more balanced growth model.

Promoting Planned Urbanisation

The development of new cities and industrial growth centres can generate employment, reduce pressure on existing metropolitan regions, and improve productivity through better infrastructure. Models such as Amaravati's land-pooling approach provide useful lessons for future urban development.

Investing in Human Capital

India's demographic dividend can be transformed into an economic advantage only through investments in quality education, technical training, apprenticeships, and industry-linked skill development. The emphasis should be on creating opportunities for young people to simultaneously learn and earn.

Strengthening Institutions and Governance

Transparent political financing, predictable regulations, efficient contract enforcement, and improved ease of doing business are essential for attracting long-term investment and fostering innovation. Strong institutions remain the foundation of sustainable economic development.

Conclusion

The 1991 liberalisation reforms played a transformative role in India's economic rise, but changing global realities require a more balanced and strategic approach. The emerging world order increasingly favours industrial capability, technological self-reliance, resilient supply chains, and strong domestic markets.