We achieved freedom through moral authority. A generation of our countrymen sacrificed careers, comfort, and even their lives to restore to our nation its dignity. But sovereignty must be reinforced by economic authority.
In a world riven by great power rivalry, strong nations steer outcomes. National strength is built on a productive economy. The capacity to produce and innovate, and to supply goods and services the world demands at scale and at competitive cost, is at the heart of sovereignty. Without it, nations are reduced to markets to be competed over.
Since 1991, India has made remarkable progress. Our economy has grown from about $300 billion to nearly $4 trillion. Poverty has fallen. Infrastructure has improved. A large, middle-income, consumer class has emerged. India now negotiates as the world’s fourth-largest economy. This transformation cannot be taken for granted. At Independence, our literacy was below 20% and life expectancy was barely thirty years. After nearly two centuries of colonial rule, during which India’s share of global output fell sharply and income growth stagnated, the foundations of a modern economy had to be built almost from scratch. To start from those conditions and become the world’s fastest growing economy reflects both the ambition of the State and the steady determination of hundreds of millions of citizens who chose work over despair.
Yet that progress now meets a changed global environment. After the Second World War, the world saw two grand economic experiments. The centrally-planned model promised equality but failed to deliver sustained prosperity. The alternative, constructed through the GATT and, later, the WTO, encouraged rules-based trade and gradual integration into global markets. Many countries that embraced this system sustained growth of 7% or more, doubling their economies within a decade. Living standards rose across much of the world.
That architecture is now under strain. WTO norms have weakened. Trade relationships are being renegotiated. Industrial policy has returned as a central tool of national strategy. India enters this moment stronger than before, but we no longer enjoy the latitude once given to low-income countries. Higher Indian tariffs are being challenged, and asymmetries are narrowing. We are now a major economy that must compete on efficiency.
Recent free trade agreements with OECD economies opened access to large markets and facilitated deeper supply chain integration. But they are only a gift for the prepared. When trade barriers fall, investment flows to countries that combine price, quality, reliability, and scale. India must navigate these headwinds to grow.
India’s wages are low relative to developed economies. This creates scope for labour-intensive manufacturing. But competitiveness depends on value added per worker, not wage levels alone. In textiles, labour productivity in Bangladesh exceeds that of many Indian units, reflecting stronger production discipline. In furniture, Vietnam’s higher mechanisation and tighter workflows generate greater value per employee. In both these labour-intensive sectors, skill depth and process capability remain our challenges.
Beyond labour, every manufactured product accumulates the factor costs of land and capital, and that of energy and logistics, compounding from the factory gate to the shipping container.
Industrial land remains costly and difficult to assemble at scale. Even building a factory requires steel and cement. Their prices, influenced by tariff structures and limited competition, raise the cost of industrial buildings and warehousing. The fixed cost of establishing production is therefore higher.
Cheap and stable energy is the bedrock of manufacturing. To secure supply, Coal India Limited was formed in 1975 as a State-owned monopoly. It grew into the world’s largest coal producer and generated substantial profits. Yet, insulation from competition led to inefficient pricing. Electricity pricing compounded this. Long-standing cross-subsidisation, with manufacturing paying higher tariffs to support agriculture and households, keeps industrial power costs elevated relative to several export-oriented economies.
Access to affordable capital is equally vital. Bank nationalisation in 1969 sought to widen credit access and direct capital toward development priorities with uneven outcomes. More recently, recognition of non-performing assets and recapitalisation of public sector banks strengthened balance sheets and restored credit discipline. Lending portfolios are healthier today. Yet long-term industrial finance remains largely confined to large enterprises, and the cost of capital still exceeds what manufacturers pay in competing countries.
India has taken genuine strides in physical infrastructure. Freight corridors, port modernisation, and highway expansion have reduced transit times and improved connectivity. But infrastructure gains are fully realised only when capital is available to use them.
Upstream industries, those supplying industrial inputs, determine competitiveness as much as any other factor. An apparel exporter competing globally carries the cost of protected inputs in every shipment, often paying more at home than rivals pay abroad. National champions play a vital role in industrialisation, but that role carries obligations. POSCO in Korea supplies steel at globally competitive prices while investing deeply in materials technology. BASF in Germany drives chemical innovation that lowers costs across its Mittelstand industrial base. TSMC in Taiwan turned semiconductors into a source of national advantage rather than a burden on downstream producers.
Protection must be contingent on performance: competing globally, investing in research and development, and strengthening industries that depend on them. When upstream firms treat the domestic market as captive, every exporter bears the cost.
India has long grappled with upstream industries. In the 1940s, industrialists including Tata, Birla, and Bajaj collaborated on the Bombay Plan, a remarkable document where leading capitalists invited the State to control the commanding heights of the economy. The reasoning was pragmatic: private capital alone could not build foundational industries at the required scale. The State stepped in and built steel, coal, chemicals, and capital goods under public ownership. Capacity expanded without the efficiency that competition imposes.
P.C. Mahalanobis deepened this approach in the Second Five-Year Plan. Using input-output analysis, he placed capital goods and heavy industry at the centre of development strategy. The logic was coherent: build the machines that make machines. What followed, however, was a protected industrial structure that grew without being benchmarked against global standards.
More recently, the Production Linked Incentive Scheme and Make in India have linked support to output and investment rather than ownership alone. These are meaningful departures. Yet private sector research and development spending remain below those of leading manufacturing nations. As automation and digital systems expand, technology intensity will matter enormously.
Other countries pursued different paths. South Korea, through institutions such as the Korea Development Bank, directed credit to favoured industries and built powerful chaebols, conglomerate groups that were not without contradictions but became formidable export engines. Japan’s ministry of international trade and industry coordinated capital, technology licensing, and sectoral priorities with discipline. In both cases, State support was tied to export performance. Protection was the means, not the end.
India followed a different course. Protection focused on self-sufficiency and import substitution rather than building industries able to compete unaided in global markets. The State often acted as proprietor rather than strategist, and export discipline was not the condition of support.
Countries that have turned comparative advantage into sustained prosperity treated upstream competitiveness not as entitlement but as discipline. That is the standard India’s next phase of industrial policy must meet.
Trade agreements create opportunity. They do not guarantee success. In a world where preferences are narrowing and competition is intensifying, countries that improve productivity and cost discipline will determine the terms of trade. Those that do not will find the terms decided for them.
In Thucydides’s History of the Peloponnesian War, the Athenians observe that the strong do what they can and the weak suffer what they must. India’s founders rejected that logic through moral authority. Our generation must reject it through economic strength, not by protecting industries from competition but by building industries capable of winning it. That was the dream of our freedom fighters: not merely sovereignty, but the capacity to determine our own terms.
Rudra Chatterjee is Chairman of Obeetee, Managing Director of Luxmi Tea, and writes on finance and economic issues
