Understanding the role of creative destruction in fostering inclusive economic growth and social cohesion in India.
India is challenged to cultivate effective legal, regulatory, and social frameworks that can harness creative destruction as a catalyst for inclusive growth and social cohesion. The recent 2025 Nobel Prize in Economics discussions shed light on this pressing need. The contributions of economists Joel Mokyr, Philippe Aghion, and Peter Howitt emphasize the evolutionary nature of economic growth. Their analysis underlines that growth is not merely a function of capital and labor but is deeply rooted in knowledge creation and the institutional structures that enable ideas to flourish and translate into widespread prosperity.
Mokyr poses a crucial question: how is useful knowledge accumulated? Aghion and Howitt extend this inquiry by examining how this knowledge can be transformed into economic growth through innovation, encapsulated in Schumpeter’s concept of the “gale of creative destruction.” For India, with its vast size and rich human capital, the implications of these insights are significant. Traditional policy discussions often revolve around inputs like factories, roads, and graduates. While these elements are essential, Mokyr argues they are insufficient without a robust social architecture that fosters the generation, testing, sharing, and scaling of ideas.
Despite India’s substantial increase in higher education and the resulting influx of graduates, the absence of a research culture and strong industry-academic connections has led to only modest advancements. The call to action is clear: India must develop institutions that support reproducible research, promote collaboration between industry and universities, and safeguard spaces for experimentation and dissent. Effective funding for research labs, alongside policies that connect these labs to relevant sectors, is paramount for meaningful progress.
Aghion and Howitt provide a deeper understanding of the mechanics behind growth cycles driven by innovation that disrupt established technologies and businesses. Their findings suggest that while temporary monopolies can stimulate innovation by providing the necessary financial incentives for risky long-term investments, excessive competition can hinder innovators from recovering their expenditures. Thus, a balanced regulatory approach is essential. Competition policy should not automatically vilify scale or market dominance but should differentiate between market power that fuels innovation and that which stifles it.
India’s telecommunications sector exemplifies this dynamic, where significant investments in infrastructure have enabled the development of extensive digital ecosystems. Conversely, other sectors have experienced setbacks due to regulatory ambiguity and consolidation. The lessons are complex; policies should not merely advocate for breaking up large firms or allowing them unchecked freedom, but rather emphasize a calibrated strategy that curtails exclusionary practices while encouraging investment in innovative endeavors.
Furthermore, regulatory frameworks must evolve to anticipate the challenges posed by emerging technologies and market dynamics. This includes adapting competition and merger assessments to protect against predatory practices that threaten competition and innovation. As creative destruction inherently produces both winners and losers, it is crucial to implement supportive measures for those adversely affected to maintain public trust in reform processes.
In a country as diverse as India, a one-size-fits-all policy is impractical. Instead, a tailored approach that pilots reforms in receptive regions and scales successful initiatives through conditional federal transfers is advisable. The overarching message from the Nobel laureates is straightforward: while scale presents opportunities, it must be paired with institutions that foster and disseminate valuable knowledge. The path forward for India involves not only recognizing its potential but also effectively addressing the institutional gaps that hinder its progress.
