Strike the economy’s head pin: Recall Say’s Law? Let supply drive India’s growth, don’t wait for demand

As we enter a new fiscal year, both the government and industry bodies such as the Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (Ficci) would do well to focus on what truly drives sustained growth in India: Is it the demand or supply side of the Indian economy?In ten-pin bowling, a strike happens only when the head pin is hit. Economic strategy is no different. If India wants to trigger a virtuous cycle of 8% growth, it must hit the right first pin.

While demand matters, it is not the head pin. Supply-side expansion is that head pin.As I argue in India@100, India has the potential to grow at an average of 8% in real terms for the next two decades. But only if we diagnose the constraints correctly.

Policy conversations habitually default to stimulating domestic demand. Similarly, India Inc often wrings its hands over demand. But India’s medium- and long-term bottlenecks are overwhelmingly on the supply side.

Countries that sustained 8% plus growth for a decade, such as Japan, South Korea and China, did not wait for domestic demand to mature. They expanded supply first. Demand followed, and explosively at that.

The ubiquitous smartphone, internet and now artificial intelligence (AI) are all supply-side marvels; we did not even know such products or services were possible, let alone demand them.India’s own experience tells the same story. Consider information technology (IT) and IT-enabled services. The surge of the 1990s did not originate in domestic demand.