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In an open letter addressed to the Prime Minister of India, global research firm Bernstein has outlined a series of structural challenges and policy priorities critical to sustaining India's long-term economic growth, while cautioning against complacency amid recent macroeconomic gains.

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In the letter, Bernstein acknowledged India's improved macroeconomic stability and its strategic shift toward productive capital expenditure since 2019. However, it warned that extrapolating recent success without addressing persistent structural constraints could result in the country underperforming its long-term potential.

Innovation and Employment Concerns

Highlighting the changing global landscape marked by supply chain realignments and rapid advancements in artificial intelligence (AI), the report stressed that innovation is no longer optional but a "hard precondition" for sustained growth. While India has demonstrated growing entrepreneurial depth, particularly in building globally competitive products and platforms, concerns remain around employment generation. The letter noted that India's traditional services-led employment model, driven by IT services, global capability centres (GCCs), and business process outsourcing (BPO), faces disruption from generative AI. A significant portion of these jobs could be vulnerable to automation, raising concerns about future income mobility and middle-class expansion.

Manufacturing and Agriculture Challenges

On manufacturing, the letter observed that despite the "China+1" opportunity, India has struggled to translate intent into large-scale job creation. Private sector capital expenditure remains cautious, and supply chains continue to lack depth. The report emphasized that without early entry into emerging sectors such as robotics, advanced materials, and AI-integrated manufacturing, India risks remaining a late entrant in global industrial cycles.

Agriculture was identified as a key area of structural inefficiency, with nearly 42-45 per cent of the workforce contributing only about 15-16 per cent to GDP. The report called for renewed reforms, improved irrigation infrastructure, and a shift away from input subsidies toward income-support mechanisms that do not distort markets.

Energy and AI Strategy

In the energy sector, Bernstein highlighted persistent inefficiencies in power distribution and India's heavy dependence on imported crude oil. It recommended accelerating the transition to electric mobility and reducing reliance on internal combustion engine vehicles through a clear policy roadmap.

On artificial intelligence (AI), the letter warned that India risks becoming a passive consumer rather than a value creator in the global AI ecosystem. It called for investments in domestic foundation models, compute infrastructure, and data governance frameworks to ensure national value capture.

Fiscal Policy and Innovation Constraints

The report also raised concerns over increasing reliance on cash transfer schemes by states, noting that while such programs support consumption in the short term, they may crowd out capital expenditure in infrastructure, education, and healthcare, areas with higher long-term productivity benefits.

Further, it pointed to low R&D spending, currently at around 0.6-0.7 per cent of GDP, as a constraint on innovation ambitions. Strengthening research ecosystems, merit-based institutions, and global talent integration were highlighted as key requirements.

On taxation and public services, the letter underscored a disconnect between tax burden and the quality of public goods, calling for improved state capacity, broader tax bases, and enhanced service delivery to build taxpayer trust.

A Call for Decisive Action

Bernstein stated that while India possesses capital, talent, and ambition, the need of the hour is decisive and timely policy action. "The window to act is still open, but it is narrowing," the letter noted, warning that delays in reform could result in long-term technological and economic dependence. (ANI)