What the 2025 Economics Nobel Suggests for India’s Next Big Leap
Rising ingenuity won’t deliver a growth leap unless India’s institutions adapt just as quickly
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Chitra Saruparia, Center for Economics, Law and Public Policy, National Law University, Jodhpur
SDG 8: Decent Work and Economic Growth | SDG 9: Industry, Innovation and Infrastructure
Ministry of Commerce and Industry | Department of Science and Technology | Ministry of Finance
India’s innovation indicators have never looked stronger: Aadhaar, UPI, and the Open Network for Digital Commerce (ONDC) have set global benchmarks for digital public goods, and patent grants crossed 1,03,000 in FY 2023–24 – a seventeen-fold increase since 2014–15. Despite this momentum, innovation is not yet reorganising the economy at the pace required: the reallocation of resources that should accompany innovations remains sluggish, leaving new ideas struggling to reshape markets or lift productivity as quickly as they should.
This gap between visible ingenuity and muted transformation sits at the heart of the work recognised by the 2025 Nobel Prize in Economic Sciences. Across different strands, Joel Mokyr and Philippe Aghion with Peter Howitt converge on a shared insight: technological advances raise growth only when institutions allow ideas to diffuse widely and competition to reallocate resources decisively.
India now faces an inflection point. With innovation capacity rising faster than institutional adaptation, the country’s growth trajectory will hinge less on generating new ideas than on its ability to move them – through firms, markets, and sectors–at scale.
Strengthening the Lab-to-Market System
In Joel Mokyr’s account of economic growth, invention becomes economically consequential only when knowledge diffuses beyond its point of origin; India’s first bottleneck lies precisely in that transition from research to use.
Institutions such as the Department of Science & Technology and the Department of Biotechnology fund research and early translation, yet the institutional bridges to industry remain weak. As a result, promising technologies lose momentum, and few early-stage innovations evolve into scalable products. The new Anusandhan National Research Foundation (ANRF) could correct this imbalance, provided it becomes a genuine coordinating platform linking universities, firms, and government rather than another siloed funding body. Without such institutional alignment, India’s expanding research base will continue to have limited economic impact.
The incentives within the system still skew heavily toward publications, not commercialisation. Licensing discussions in public labs often drag on for months due to understaffing and lack of standard templates – bottlenecks that deter startups and investors. A few targeted reforms could unlock significant value: tying funding to technology transfer performance, enforcing standardised and time-bound licensing processes, and ensuring multi-year support for mission-oriented research.
Absent institutional mechanisms that prioritise speed and scale of diffusion, India risks remaining “lab-rich but market-poor,” with limited economic returns from a growing research base.
Speeding Entry, Unlocking Exit
This challenge is brought into focus by a core insight of Aghion and Howitt’s Schumpeterian growth framework: innovation drives growth only when new firms can enter easily and less productive ones can exit quickly. Yet India’s firm exit rates remain among the lowest in major economies. Evidence from the Yale Economic Growth Center shows that Indian firms – particularly smaller ones – exit far less efficiently than their counterparts in advanced economies, trapping capital and labour in low-productivity activities. The result is an economy where new ideas emerge but struggle to reorganise markets.
India’s Insolvency and Bankruptcy Code (IBC) has strengthened credit discipline, yet resolution timelines remain lengthy and inconsistent, especially for MSMEs. Even modest delays can erode asset value and freeze capital that should be redeployed. More predictable exit mechanisms – through effective MSME pre-pack frameworks, greater tribunal capacity, and digital case-management – would allow faster and more predictable exits.
Technological change has raised the stakes for competition policy. As digital markets concentrate, the Competition Commission of India (CCI) needs stronger analytical capabilities and sharper legal tools to curb practices – such as exclusivity clauses, self-preferencing, or predatory pricing – that can shut out innovative startups. The goal is not to restrain large platforms but to keep markets open and prevent gatekeepers from shaping the trajectory of innovation.
These reforms are essential because sectors like clean energy, AI, biotechnology, and mobility will evolve quickly and unpredictably. India’s ambitions in renewable energy and green hydrogen depend on enabling new entrants to integrate into supply chains smoothly and scale without policy volatility. If exit remains sluggish and incumbents can block challengers, these sectors will struggle to mature quickly enough to anchor future growth.
Beyond the Metros
Seen through Mokyr’s lens of knowledge diffusion, regional imbalance is not a separate constraint but the spatial manifestation of weak diffusion and stalled reallocation.
Most high-growth activity remains clustered in a few metropolitan centres, while large parts of the country operate far from the technological frontier. Yet Startup India data suggest an important shift: almost half of recognised startups now emerge from Tier-II and Tier-III cities, indicating underused talent pools and latent entrepreneurial ecosystems.
Early examples suggest what coordinated institutional support can unlock. Coimbatore’s manufacturing base, Bhubaneswar’s growing ed-tech cluster, and Indore’s food-processing startups illustrate how regional capabilities can scale when connected to wider innovation networks. Whether this potential translates into sustained productivity gains, however, depends on policy choices–particularly investments in regional universities and engineering colleges, the development of technology parks and incubators beyond major metros, and stronger links to national innovation systems.
Absent such institutional alignment, the risk is not merely uneven development, but a two-speed economy in which innovation advances without broad productivity convergence.
Accelerate Innovation, through Co-creation
Institutional limits that restrict diffusion at home do not disappear at the border; by extension, they shape how Indian firms participate in frontier innovation globally. India must position itself not as a passive technology taker but as a co-creator in emerging value chains. Frameworks such as the United States–India Initiative on Critical and Emerging Technology (iCET), focused on semiconductors, AI, quantum technologies, and advanced telecom, show how strategic partnerships can be built around collaborative R&D, joint standards, and co-investment.
To benefit fully from such platforms, India needs strong domestic regulatory capacity: faster and more predictable approvals for frontier technologies, clear rules on data governance and AI accountability, and IP regimes that protect inventors without inhibiting diffusion. Without these foundations, India risks being present in high-level dialogues but absent from the most dynamic and valuable segments of global value chains.
Aligning Institutions with Ambition
Taken together, the insights of Mokyr, Aghion, and Howitt, reduce India’s innovation slant to a single question: can its institutions keep pace with its ideas? Too many innovations stall between labs and markets, between metropolitan centres and the rest of the country, and between domestic capability and global value chains. Building institutions that enable experimentation, reward results, and allow resources to shift swiftly to better opportunities is essential for innovation-led growth. Without such reforms, the country risks not only slower economic progress but also the wasted potential of a generation whose talent outpaces the economy’s capacity to absorb it.
India has already shown it can build digital rails. The test now is whether it can construct institutions that let innovation flow across them.
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