Reform 3.0: Why India Keeps Missing the Mountain

This is the first essay in a two-part series on why India’s economy struggles to convert ambition into broad-based productive growth.

India’s development did not falter because it lacked resources, vision, or ambition.

It created systems. It wrote policies. It announced national projects. But too many of those arrangements gradually became focused on preserving themselves rather than solving the problem they were meant to address.

This is not only a corruption problem. It is not only a competence problem. It is a design problem. Unless that design changes, new policies will continue to be layered onto old failures—and little will fundamentally change.

This is the fourth essay in a series on the economy India has built, and the one it still needs to build. The first argued that India cannot app its way to prosperity—that a decade of platform capitalism built a dazzling convenience layer for a hundred million people while the middle engine of growth remained weak. The second argued that we were governing an economy we imagine but do not fully have—that headline GDP numbers masked deeper structural fragility. The third examined how India expanded education faster than it created pathways into work, setting up an employment challenge that is now hard to ignore.

This essay brings those strands together.

If India celebrated the wrong sectors, measured the wrong indicators, and educated young people for jobs that did not exist in sufficient numbers, the deeper question is: why does this keep happening?

The answer is not lack of ambition.

It is that too many parts of the economy are still pulling in different directions.

Before making the case for what must change, it is worth acknowledging that India has tried before.

We Did Try

Special Economic Zones were created to accelerate industrialisation. Too many became land plays—acres acquired in the name of industry, held for zoning uplift, with factories optional.

Public–private partnerships were structured to bring private efficiency into infrastructure. Many stalled, others fell into litigation, and projects remained stuck while contracts were contested.

Operation successful. Patient dead.

Development finance institutions were set up to fund industrial capacity that private markets would not. The idea was sound: patient, long-tenure capital for investments that would pay back over decades. But without strong accountability, that capital often became easy money. Promoters learned to over-invoice projects, extract value early, keep the upside if the business worked, and leave the downside with the public sector.

Much of Indian capitalism adapted to this environment. Scale was not always built through superior products or relentless execution, but through access—to finance, regulation, and distressed assets. Productivity often took a back seat to proximity to the state.

This is not to excuse failure or dismiss enterprise. It is to recognise that any framework for Reform 3.0 that ignores this history will repeat it.

India has launched ambitious public efforts before. The question is why so many drifted away from their original purpose.

Rare earths illustrate the gap between ownership and outcome. India has meaningful reserves of minerals critical for electronics, renewable energy, and defence systems. Yet its output remains a small fraction of global leaders. The constraint is not only geology. It is the operating environment required to extract, process, and integrate these resources into value chains.

Coal tells a similar story in a more familiar sector. India has reserves, state-owned enterprises, and decades of planning. Yet it continues to import significant volumes to meet demand. The issue is not the existence of resources, but the economy’s ability to move, allocate, and use them efficiently.

Electronics reflects a newer version of the same pattern. India has scaled production, attracted investment, and become a serious assembly base. But domestic value addition remains limited in key segments, with critical components still imported. The top layer has grown faster than the foundation beneath it.

Land shows the problem most clearly. A project can have capital, demand, approvals in principle, and political support—and still lose years to acquisition disputes, regulatory fragmentation, and overlapping jurisdictions. No single decision has to explicitly kill the project. Each file simply moves according to its own logic while the investment itself stops moving.

These are not isolated failures. The same pattern keeps returning.

India creates structures to solve real problems. Over time, too many become focused on process, control, and continuity rather than the outcomes they were meant to deliver.

That is the cobweb.

And cobwebs do not respond to new announcements. You can add a new scheme, create a new ministry, or issue a new circular. But if the underlying behavioural logic remains unchanged, the same outcomes reappear.

The cobweb prevails—slowly entangling the economy in its own rules.

Reform 1.0 liberalised markets. Reform 2.0 digitised access.

Reform 3.0 must redesign what the economy rewards.

The Local Maxima Trap

The hardest thing to accept is that, very often, nobody in public life is breaking the rules.

That is the problem.

The forest officer who stops a highway to protect a stand of trees is doing what his job rewards. His mandate is environmental protection, and by that measure, he is succeeding. But the same highway might have reduced logistics costs, lowered fuel consumption, and improved the movement of goods across regions. The wider benefit—economic, environmental, and social—sits outside his scorecard.

The PSU sitting on mineral reserves is not necessarily idle. It is working within a procurement structure, an employment framework, and a capital allocation process that rewards caution and continuity. Building a globally competitive operation would require speed, risk-taking, and commercial judgement that its governance model was never designed to allow.

The regulator who blocks a new entrant may also be doing what it was created to do. It protects consumers. That the same barrier can also protect incumbents and limit competition sits outside its mandate.

A welfare programme that focuses on disbursement is not malfunctioning in its own terms. It is delivering what it was designed to deliver. But if its design does not account for how incentives to seek work might shift, that consequence goes unmeasured.

This is how economies fail even when their parts appear to be functioning.

Each part does what it has been asked to do. Together, they produce a result nobody intended.

The same pattern shows up in education. India built universities, colleges, and training institutes at extraordinary speed and produced the most educated generation in its history. On paper, each part of that structure could claim progress. But the economy waiting at the other end did not expand at the same pace. The bridge from learning to earning remained weak.

Economists describe this as a local maxima problem. You climb the nearest hill and believe you have reached the top. The real mountain lies elsewhere, but your incentives give you no reason to move.

India’s reform conversation has often treated this as a corruption problem or a competence problem. Fix the officer. Train the bureaucrat. Improve the curriculum. Skill the worker. The rest will follow.

It will not.

The problem is not only the officer, the teacher, the student, or the worker. It is what each has been asked to optimise for.

The corporation protects employment. The regulator protects control. The court protects procedure. The welfare programme protects disbursement. The college optimises for enrolment, not employability. The skilling ecosystem optimises for certification, not jobs.

All of these are defensible goals. None of them is enough.

That is why the cobweb is so difficult to clear. It is not made only of corruption or incompetence. It is made of rules, mandates, incentives, and measurements that make sense in isolation but fail in combination.

There is another layer. India has accumulated laws and regulations across decades—some inherited, some designed for very different economic contexts. Together, they have made ambiguity valuable. In almost any activity, firms operate under overlapping rules, some of which no longer fit current realities. That ambiguity creates room for discretion, and discretion creates leverage.

The result is rarely dramatic. It is a series of small delays, compliance burdens, and uncertainties that accumulate over time. Firms stay small. Formalisation slows. Scale becomes harder than it should be.

That is the local maxima trap. Everyone is climbing the hill in front of them.

The country keeps missing the mountain.

The Change We Need

Reform 3.0 requires replacing many narrow targets with one clear goal, and aligning public systems toward it.

That goal is productive employment at scale.

Not because employment is only a welfare issue, but because work is how an economy turns its people, resources, and enterprise into broad-based national wealth. Everything else—clearances, courts, finance, curriculum—exists to support that outcome.

The test is simple: does a given law, policy, regulator, or public expenditure move India closer to that goal?

If it does, strengthen it. If it does not, redesign it.

The Window Is Open. For Now

This is not a reform India can defer indefinitely.

The harder question, however, is what redesign actually looks like in practice. If the problem is not ambition but misalignment, then Reform 3.0 cannot simply mean more schemes layered onto the same operating structure. It requires changing the conditions under which the economy builds, hires, finances, and grows.

The demographic window is time-limited. The working-age population will not expand forever. Countries that used this phase to build industrial capacity and middle-class purchasing power are now benefiting from those investments. Those that did not are beginning to experience demographic drag.

Every year of institutional drift is a year of this window spent.

The external opportunity is also time-bound. Global supply chains are actively diversifying. Firms are looking beyond China—not as an aspiration, but as strategy. Countries like Vietnam and Bangladesh have been significant beneficiaries in specific sectors. India is considered, but not chosen often enough.

The constraint is not intent.

It is the cumulative weight of delay, uncertainty, and operating drag.

India has spent too long living on the promise of potential. Potential does not employ people. Announcements do not create capacity. Resources do not become wealth on their own.

Reform 3.0 begins by recognising that India’s advantages are real—but they will not convert themselves.

It cannot begin with another scheme layered onto the same operating structure.

That is the shift India now needs.

Continue Reading

Part Two: Reform 3.0 — What Has to Change
If the problem is institutional misalignment, what would a different operating logic for India’s economy actually require?

[Read Part Two →]