India’s growth journey balances promise with governance challenges

At the IMA India’s Annual CFO Strategy Roundtable, Karthik Muralidharan, Tata Chancellor’s Professor of Economics at the University of California, San Diego, highlighted India’s promising growth trajectory, yet cautioned about the deep-rooted challenges that hinder its full potential. India, while being one of the world’s fastest-growing economies, faces a unique duality – on one hand, a burgeoning entrepreneurial class and macroeconomic stability, on the other, a persistent struggle to deliver essential public services.

India’s economic fabric is shaped by three tiers: the top 10%, driving innovation and quality jobs; the middle class, sustained by demand from the elite; and the bottom 50%, primarily rural, reliant on welfare. While the state has carried out large-scale projects with impressive efficiency—such as nationwide elections and vaccination drives—daily governance inefficiency remains. Governance deficits in key areas like education and healthcare continue to stymie development.

Professor Muralidharan pointed to a central problem: India’s welfare programmes were introduced at relatively low income levels, which strained the state’s capacity and led to underinvestment in crucial sectors. Compounding this is the centralised nature of governance, which often limits the effectiveness of local service delivery, particularly in rural areas.

However, he noted growing optimism. Political trends now favour governance and performance, with state leaders being re-elected based on measurable economic and social outcomes. Moreover, advancements in technology and data-driven policies offer India a rare opportunity to enhance public service delivery without excessive budgetary strain, potentially unlocking broad-based development.

For India to realise its full potential, the path ahead lies in improving human capital through better education and healthcare, while simultaneously addressing governance inefficiencies. This dual focus will transform India’s growth from promise to reality.