New Delhi: Global brokerage Bernstein has written an open letter to Narendra Modi, cautioning that India may fall short of its economic potential unless it addresses structural challenges related to employment, subsidies, and investment.
The letter revisits concerns first raised in 2019 and comes at a time when India has climbed global GDP rankings but continues to grapple with issues in job creation, innovation, and infrastructure development.
A key concern highlighted in the note is the growing impact of artificial intelligence on India's services-driven economy. For over two decades, India's growth has relied heavily on a large English-speaking workforce employed in IT services, Global Capability Centres (GCCs), and Business Process Outsourcing (BPO).
This workforce, estimated at 1 to 1.5 crore people, has played a crucial role in expanding the middle class and driving consumption. However, Bernstein warned that many of these roles are highly vulnerable to automation as AI adoption accelerates globally.
The report noted that much of the value creation in AI—such as platforms and intellectual property—is currently concentrated in the United States and China. This raises the risk that India may primarily become a consumer of AI technologies rather than a creator, limiting its share of economic gains.
The letter also flagged concerns about the rapid expansion of cash transfer schemes across states. Annual outlays for such programmes are estimated at ₹1.7 lakh crore to ₹2.5 lakh crore, accounting for roughly 0.5 per cent of GDP.
While acknowledging that these schemes help support consumption and reduce financial vulnerability, Bernstein cautioned that they may not be the most efficient way to drive long-term growth.
'The issue is not that they do nothing; it is that, for an investment-starved emerging economy, it is a very expensive way to buy growth,' the note observed.
The report argued that funds allocated to subsidies could instead be directed towards infrastructure, education, research, and skill development, which offer more sustainable economic returns.
Bernstein warned that continued expansion of welfare schemes could crowd out capital expenditure, reduce fiscal flexibility, and increase inflationary pressures. It stressed the importance of maintaining a balance between welfare spending and productive investment.
As India aims to sustain high growth rates, preserving fiscal discipline while prioritising long-term investments will be critical.
Another major issue highlighted in the letter is India's relatively low spending on research and development, currently estimated at just 0.6 to 0.7 per cent of GDP—well below global benchmarks.
The brokerage noted that without significant improvements in innovation investment, India's ambitions in sectors such as semiconductors, artificial intelligence, and deep technology may face limitations.
It emphasised that strong innovation ecosystems require sustained funding, skilled talent, and institutional support, along with policies that encourage merit-based growth.
The letter framed these challenges as part of a broader need for next-generation reforms. While India has achieved macroeconomic stability and growth through policy alignment, Bernstein stressed that future progress will depend on deeper structural changes.
Global trends such as supply chain realignments and rapid technological advancements demand a forward-looking strategy that strengthens competitiveness and resilience.
Bernstein's message underscores a critical juncture in India's growth journey. While the country's economic trajectory remains strong, sustaining momentum will require addressing job market disruptions, rebalancing fiscal priorities, and significantly boosting innovation.
Without timely reforms, the report cautions, India risks missing out on the opportunities presented by the next phase of global economic transformation.