For decades after Independence, Indian economic policy instinctively tilted in favour of labour over capital. Redistribution, employment guarantees, and State-led spending dominated the political imagination. Yet 2025 is shaping up as a turning point — a year that may be remembered as a 1991-style moment, when the balance visibly shifted towards capital, investment, and private enterprise. The difference this time is striking: unlike 1991, this pivot has not been forced by an external crisis.
Why 2025 feels like a structural break
In 1991, India’s embrace of capital and markets came under extreme duress. Foreign exchange reserves had dwindled to perilous levels, forcing the country to seek emergency assistance from the International Monetary Fund. Liberalisation was less a choice than a compulsion.
By contrast, the reforms of 2025 are voluntary. They include pro-capital changes in income tax, rationalisation of GST, operationalisation of new labour codes, reforms in stock market regulation, restructuring of MGNREGA, and even opening up nuclear energy policy. Added to this was the earlier corporate tax cut to an effective rate of around 20 per cent. Taken together, this is an unusually broad reform sweep for a government otherwise accused of political inertia.
Why favour capital when votes lie with labour?
At first glance, the shift appears politically counterintuitive. The ruling party will still depend on the votes of the poor in the next general election. Why then privilege the “well-off”?
The answer lies in a hard fiscal and economic reality: government spending alone cannot generate enough jobs. India now requires far higher levels of private investment to absorb its expanding workforce. Employment creation has become inseparable from private capital deployment. This is the first explicit acknowledgement, since 1947, that the State cannot be the sole engine of job creation.
From populist socialism to populist capitalism
This marks a deeper ideological change. Instead of populist socialism, India is witnessing the emergence of what may be called populist capitalism — courting private investors while promising growth-led inclusion. In doing so, policymakers appear to have internalised a truth memorably articulated by Margaret Thatcher in 1976: socialism eventually runs out of other people’s money.
The political wager is that capital-led growth will deliver jobs quickly enough to retain popular legitimacy.
The unresolved bottleneck: India’s bureaucracy
Yet this pro-capital pivot faces a formidable obstacle: the bureaucracy. Unless structural reform of the administrative apparatus accompanies economic reform, the gains may remain muted.
Too much discretionary power remains concentrated in “babudom”. Some officials obstruct out of misplaced caution, others extract rents, and a few do both. This randomness increases uncertainty and risk for businesses. Policy is announced by the government, laws are passed by Parliament — but implementation is filtered through dense, often contradictory rules framed by bureaucrats.
The colonial legacy of “permission raj”
This mindset has deep historical roots. Under colonial rule, governance evolved around suspicion of the native population, requiring permissions for almost every activity. This inverted the British principle that citizens may do anything unless explicitly prohibited by law.
Independent India inherited this logic. The requirement of permission — rather than compliance — became the source of both corruption and delay. Economic reform thus often stalls not at the level of intent or legislation, but at the level of rules.
Where real power lies
The problem is asymmetry of attention. Ministers juggle politics, Parliament, media, and administration. Bureaucrats, by contrast, control narrow but powerful domains — especially rule-making. This gives them effective veto power over reforms.
Unless the authority to issue unnecessary, redundant, or self-contradictory rules is curbed and subjected to oversight, capital-friendly reforms will struggle to translate into on-ground outcomes. Without this, the metaphor holds: the driver controls the speed, not the owner.
What this means for Viksit Bharat 2047
If 2025 is indeed India’s voluntary turn towards capital, it is a necessary but insufficient condition for long-term growth. Private investment can create jobs only if the administrative environment is predictable, rules are simple, and discretion is limited.
For Narendra Modi’s vision of Viksit Bharat 2047, economic reform without bureaucratic reform will not suffice. Capital may be welcomed in policy speeches, but unless it is freed from procedural choke points, the promise of this moment may dissipate.
What to note for Prelims?
- Difference between 1991 and 2025 reform contexts
- Role of private investment in employment generation
- Concept of labour–capital balance in economic policy
- IMF-led reforms versus voluntary domestic reforms
What to note for Mains?
- Critically analyse why India is shifting towards capital-led growth.
- Discuss how bureaucratic discretion affects economic reforms.
- Examine whether pro-capital reforms can coexist with electoral democracy.
- Assess the relevance of administrative reform for achieving Viksit Bharat 2047.
