Rethink 1991: India can’t become a developed country without a course correction in economic policy

Subscribe to enjoy similar stories. The general consensus seems to be that the budget for 2026-27 was not bad, but not good enough. It’s a safe budget.

It didn’t rock the boat. It tried to keep the ship on course to India’s goal of increasing GDP and achieving ‘Viksit Bharat’ by 2047. However, it did not address the strategic vulnerabilities of the Indian economy highlighted in the Economic Survey.

India is caught in the pincer grip of a US-China geopolitical standoff. We rely on trade with China, with which we have boundary disputes, and on Russia for oil and arms, while the US continues to support Pakistan. We cannot afford to annoy the US, China or Russia, as our industrial capabilities are not strong yet.

We must build these to recover ground lost to China by our premature abandonment of industrial policies in 1991. No doubt, India’s GDP has grown since 1991 and poverty has also reduced. But over the same period, China’s GDP and per capita income grew much faster.

The employment elasticity of India’s GDP growth (i.e., good jobs generated per unit of GDP) is among the world’s lowest. Estimates show that since 2001, India has been converting GDP to jobs at only two-thirds the rate of other Asian countries. GDP will have to grow at a rate of 12% annually to produce enough jobs if this pattern of growth persists.

This is well beyond the 6.5-7.5% that economists say is feasible. Debates on India’s economy have degenerated into whether GDP and employment did better under Congress or BJP-led governments, but the truth is there is no difference. GDP grew at 7.2% annually in 10 years of the former (excluding 2008-09 when the global financial crisis hit) and at 7.2% in the next 10 years of the latter (excluding the 2020-21