In September 1984, JRD Tata responded to PN Haksar, a retired bureaucrat, who criticized businessmen for their lack of contribution to India’s development. Tata expressed his frustration: “I began my 55-year career as an angry young man due to foreign dominance and end it as an angry old man, heartbroken over the ongoing plight of the majority of our people. Much of this can be attributed to poorly conceived government economic policies. Instead of fostering energy and entrepreneurship, the restrictive system of licenses and controls, along with heavy personal taxation, not only stifled genuine free enterprise but also encouraged bribery, tax evasion, and black markets.”
Over the last 35 years, transformative reforms—such as delicensing, deregulation, Aadhaar, UPI, inflation targeting, bankruptcy laws, GST, and reduced corporate taxes—have laid a robust foundation for India to achieve a $5 trillion economy. However, to elevate this to a $10 trillion economy, bringing per capita income in line with China, a revolutionary approach to human capital among India’s 20 million civil servants is crucial.
Envisioning India’s $10 Trillion Economy
What would a $10 trillion economy look like? Currently, 80% of our workforce operates outside agriculture, highlighting that reducing the number of farmers is essential for their betterment. The number of cities with populations exceeding one million will increase from 52 to 200. Commuters will enjoy an average 30-minute travel time to work, and government borrowing costs will remain below 4%. Land markets linked to Aadhaar will create equal rental yields and mortgage rates. Public sector banks will operate under an independent holding company, reducing reliance on taxpayer funding. The credit-to-GDP ratio will rise to 100% (up from 50%) as financial institutions learn to lend effectively and recover loans. Enrollment in government schools will stabilize due to improved learning outcomes, affirming that high-quality education should be freely accessible. Furthermore, India will attract manufacturers relocating from China to nations like Vietnam and Malaysia. The influx of global capital, driven by negative interest rates, will support our investment needs. Fiscal discipline will ensure low inflation and 50% of college-age youth will participate in a diverse higher education landscape (compared to just 25% in the current uniform system). Policies will encourage formal hiring, moving away from inflexible and punitive labour laws. A reformed social security system will extend coverage to 60% of workers, increasing from the current 20% who are inadequately served by the Provident Fund and ESI.
The Challenge of Prosperity: Balancing Capital and Labor
Achieving prosperity hinges on the productivity of both businesses and workers. However, India’s capital remains constrained by labour market inefficiencies, while workers face limitations due to a cumbersome regulatory framework that includes 57,000 compliance requirements, 3,100 filings, and 4,000 annual changes. This adversarial stance towards private enterprises stems from outdated bureaucratic mindsets, such as “prohibited until permitted” and “know-it-all instead of learn-it-all.” Moreover, there is a tendency to stereotype the private sector as solely large corporations, overlooking the vital contributions of micro, small, and medium enterprises (MSMEs). Over the past decade, publicly listed PSUs have lost $150 billion in value, reflecting the Gujarati proverb: “Where the king is a businessman, the populace becomes beggars.” Reforming this heavy regulatory burden requires a significant shift in civil service culture.
Implementing a New Human Capital Regime
To establish a new framework for human capital, we propose two initiatives in six key areas: structure, staffing, training, performance management, compensation, and culture.
Structure – Streamline operations by reducing the number of PSUs and departments across 55 central ministries (e.g., Japan has 9, the US has 14, and the UK has 21).: Restructure the hierarchy from a cylinder to a pyramid, resembling an Eiffel Tower, to create a clearer rank structure.
Staffing – Address the gap between sanctioned and actual staff strength to ensure that competent individuals are not overwhelmed or left in unnecessary positions. Promote cognitive diversity and healthy competition by introducing 20% lateral entry.
Training – Revamp course selection (demand-driven rather than supply-driven), nominations, evaluations, and integration with performance management. Shift from episodic learning to a continuous model.
Performance Management – Implement a forced distribution for performance appraisals, categorizing 20% as outstanding, 60% as good, and 20% as poor. Adopt military-style thresholds, where individuals not shortlisted for promotion retire by age 50.
Compensation – Transition to a cost-to-government approach by monetizing employee benefits. Freeze salaries for lower-tier positions while increasing compensation for higher-level roles.
Culture – Establish a tone from the top regarding corruption and differentiation in performance appraisals. Encourage leaders to recognize and reward high performers while addressing any corruption among subordinates.
Bridging the Gap for Sustainable Growth
The current economic slowdown is a necessary short-term challenge for long-term gain, driven by overdue reforms. This shift in mindset—where capability and strategy become valuable through competition and accountability—must extend to civil servants. Modern economic theories view development as a collaborative effort, where the government provides essential support to enable the private sector to thrive. Unfortunately, the current civil service fails to supply sufficient resources; the once-strong framework has become a constraint. After a prolonged disconnect between the intellect of the Indian state and its foundational structure, it is time to ensure that this backbone effectively drives action and progress, paving the way for India’s ascent to a $10 trillion economy.
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Thanks for breaking this down so thoroughly!