India’s recent growth story has always been construed as a post-1991 liberalisation phenomenon. The formative decades after independence in 1947, however, unfold a dismal picture with growth numbers struggling even at low bases of the GDP, as the state embraced a “Nehruvian Socialist” pattern of development. The newly independent republic, scarred by colonial exploitation, embarked on a planning architecture anchored in the Five-Year Plans, with a strong state role in commanding heights of the economy—steel, heavy industry, infrastructure, and public sector enterprises. The objective was self-reliance, equitable distribution, and rapid industrialisation, inspired in part by Soviet’s central planning, but adapted to India’s democratic context.
Laid foundations, but missed market
No doubt that this model laid the foundation for basic industries, scientific institutions, and public infrastructure. But being bereft of advantages of market forces and surrounded by the hedges of protectionism, it also produced slow growth rates—famously dubbed the “Hindu rate of growth,” averaging around 3.5 percent annually for the first three decades. The inward-looking, import-substituting regime, combined with over-regulated private enterprise and limited integration into global markets, inhibited productivity and competitiveness. Poverty reduction was painfully slow, and inequality persisted despite redistributionist rhetoric.
Reforms pushed up growth rate in 90’s
The reforms of 1991 marked a decisive break from this paradigm. They opened the economy, deregulated industries, and reduced the state’s direct role in production. Over the next three decades, growth rates accelerated, poverty fell faster, and India emerged as one of the world’s largest economies. Yet, the legacy of the earlier socialist era continues to shape development debates—particularly the balance between state-led investment, social equity, and market dynamism.
Domestic domination insulated economy
Post-reform India’s growth has been distinctive: unlike the classical sequence where economies move from investment-led to consumption-led growth, India’s expansion in the past two decades has been disproportionately powered by domestic private consumption. Household spending—fuelled by rising incomes, demographic dividends, and credit penetration—has accounted for nearly 60 percent of GDP in recent years, higher than most emerging economies.
The advantages of such a model are manifold. First, it insulates the economy to some extent from global demand shocks, since a large domestic market can act as a stabiliser when exports falter. Second, it generates a virtuous cycle—rising consumption spurs production, which in turn fuels employment and incomes, further boosting demand. Third, it enables small and medium enterprises (SMEs) to flourish, as they cater to local and regional markets. Fourth, it supports inclusive economic participation by allowing households across income tiers to directly contribute to growth. In a country as large and diverse as India, this decentralised demand base reduces overdependence on a few sectors or geographies for economic dynamism.
Income inequality increased
However, the sustainability of such growth is contingent on broad-based prosperity. When income and wealth concentrate at the top, consumption expansion eventually stalls because the rich save a larger share of additional income, while the poor spend nearly all of theirs. This makes consumption inequality—rather than just income inequality—a decisive factor in sustaining demand.
Encouragingly, India’s consumption inequality has declined. The World Bank’s estimates show the consumption Gini falling from 0.288 in 2011 to 0.255 in 2022, alongside a dramatic fall in extreme poverty from 27.1 percent to 5.3 percent—about 269 million people lifted out of extreme poverty. Per capita consumption among the bottom 10 and 50 percent has grown faster than among the top deciles, signalling an “equalising India” in material well-being.
Yet, the income Gini—as per the World Inequality Database—has risen from 0.59 to 0.61 over the same period. Serious questions have been raised against this measure, as incomes remain under-reported, the informal sector dominates, and consumption remains the more reliable welfare measure. But rising income inequality still poses a risk—by undermining upward mobility, fuelling social discontent, and weakening the foundations of consumption-led growth.
Investment led growth at expense of natural capital
In any case, over-reliance on one driver of growth, i.e., private consumption, cannot be a sustainable solution. While it needs to be boosted, the growth forces need to be diversified towards investment-driven growth. The Union Budgets over the last five years have consistently raised public capital expenditure, aiming to crowd in private investment by addressing infrastructure gaps, improving logistics, and enabling manufacturing and services to scale.
Investment-led growth can raise productivity, diversify the economic base, and generate quality employment—critical for absorbing the millions entering the workforce annually. But the Global South’s development history shows that physical capital expansion often comes at the expense of natural capital. Large-scale infrastructure, industrial corridors, and urban expansion have frequently displaced forests, wetlands, and grasslands, undermining ecological resilience.
Climate change critical but hardly any adaptation finance
The GDP-centric lens, inherited from both Nehruvian planning (as a measure of progress) and post-1991 growth-fetishism, reduces the notion of development to a single number. This ignores the depletion of natural capital—forests, rivers, biodiversity—that sustains long-term prosperity and development. It is thus important to view development holistically from the reductionist GDP-centric notion.
The Inclusive Wealth framework offers a more holistic metric, integrating natural capital, physical capital, and human capital. Tracking changes in these stocks—rather than flows alone—ensures that today’s investments do not erode tomorrow’s well-being. This dovetails with India’s LiFE (Lifestyle for Environment) philosophy, which emphasises responsible consumption and ecological mindfulness.
India’s development path must also confront the reality of being one of the most climate-vulnerable nations. While mitigation rightly garners attention, adaptation finance remains the missing link in India’s climate strategy, like many other parts of the global south. This is an economic imperative, as without adaptation, climate shocks will erode both consumption and investment gains, perpetuating vulnerability traps affecting all long-run development parameters. Therefore, the country needs to mobilise adaptation finance through the creation of a market for adaptation, demonstrating returns through reduced losses, improved productivity, and resilience gains, and mobilisation of CSR funds and philanthropic and concessional finance, structuring public–private partnerships to share risks and rewards.
An integrated development paradigm
From the state-led socialist planning of the Nehru era to the market-oriented reforms post-1991, and now to the sustainability-inflected investment push of the 2020s, India’s development trajectory reflects evolving priorities. The task today is not to choose between consumption and investment, or growth and sustainability, but to integrate them.
A viable strategy rests on three mutually reinforcing pillars:
- Human capital—health, education, and skills for productive participation.
- Physical capital—infrastructure that is technologically advanced and ecologically sensitive.
- Natural capital—conservation and regeneration as non-negotiable foundations of prosperity.
Operationalising this shift requires:
- Embedding natural capital accounting into infrastructure and industrial project appraisals.
- Investing in human capital—health, education, skills—alongside physical assets.
- Incentivising corporate ESG compliance, linking sustainability with long-term profitability.
This aligns with what I have described as the Irreconcilable Trinity of development—efficiency, equity and sustainability pursued simultaneously. It also reflects the adaptive pragmatism of India’s development journey—retaining the equity focus of the socialist phase, the efficiency gains of the reform era, and the ecological sensibilities demanded by the climate crisis.
At this inflection point of development, India needs to redefine its development trajectory to one that isinvestment-driven, climate-resilient, and anchored in Inclusive Wealth. This is the only way to reconcile growth ambitions with the imperatives of equity and sustainability, ensuring that Viksit Bharat @ 2047 is not just richer, but also more resilient, inclusive, and ecologically secure.
Dr. Nilanjan Ghosh, an ecological – economist, is the Vice President at the Observer Research Foundation (ORF). He heads Developmental Studies at the Foundation, and also the head of its Kolkata centre. This article is part of the ‘India at 79: Freedom at midnight, lost in daylight?’ series.