Introduction:

India faces a critical policy challenge — balancing the long-term gains of global trade with the short-term risks of unemployment, stagnant wages, and inequality among vulnerable populations. The existing economic system prioritises private capital accumulation over mass welfare, requiring a realignment of capitalism toward inclusivity and public interest.

Amid global trade disruptions, tariff wars, and falling external demand, Indian capital must reinvent itself, collaborate closely with the government, and anchor domestic economic stability through investment, innovation, and equitable growth.

Evolution of Indian Capital and the Need for Reorientation:

• Protected Growth Era: Historically, Indian capital thrived under state protection before liberalisation, leveraging tariff barriers and inward-looking policies to earn supernormal profits in closed domestic markets.
• Global Expansion Phase: Liberalisation in the 1990s enabled Indian firms to expand globally, acquiring foreign assets and establishing international linkages. This evolution created a few industrial conglomerates that dominate key sectors.
• Shift Toward Public-Interest Capitalism: With global trade slowing and protectionism rising, these firms must now redefine their role — from being beneficiaries of state incentives to partners in public-interest growth.
• Reinvention of Capitalism: Capitalism, as history shows, can adapt and evolve. The moment demands an inclusive capitalism that balances private profit with national development goals.

Global Trade, Demand, and Economic Vulnerabilities

• Determinants of Demand Expansion: Economic history identifies three drivers of mass-market expansion, creation of a wage-labour class, productivity gains from industrial production, and rising personal incomes leading to higher demand.
• Neglect of Aggregate Demand: Growth of aggregate demand is vital for sustaining production and profits, yet most policy frameworks underestimate its role, assuming supply automatically creates demand.
• Domestic vs. External Demand: In a globalised economy, demand comprises domestic and external components. While early industrial policies relied on internal markets, the post-reform phase emphasised exports.
• Vulnerability to Global Shocks: Today’s volatile global trade marked by tariffs and supply-chain distortions, has weakened external demand. Thus, strengthening domestic consumption through higher wages, internal investment, and industrial diversification is the pragmatic path forward.

The Role of Domestic Capital in Stimulating Growth

1. Reviving Private Investment

• • Stagnation in Private Capex: Despite record corporate profits, private investment has stagnated, with the state driving capital formation through public infrastructure and fiscal stimulus.
  • Rise in Public Investment: Public capex surged from ₹3.4 lakh crore (FY20) to ₹10.2 lakh crore (FY25) — a CAGR of 25%, primarily in railways, roads, and communications.
  • Outward vs. Inward Investment: Private capex remains subdued even as outward FDI by Indian firms has grown 12.6% annually (2019–2024), indicating stronger foreign than domestic investment appetite.
  • Strategic Redirection Needed: A strategic reversal is required — redirecting capital toward domestic expansion, capacity building, and industrial diversification.

2. Ensuring Moderate Wage Growth

• • Profit–Wage Imbalance: The Economic Survey 2024–25 highlighted a growing imbalance — corporate profits at a 15-year high versus stagnant real wages.
  • Falling Real Incomes: Rating agencies project real wage growth to fall from 7% (FY25) to 6.5% (FY26), weakening purchasing power and domestic demand.
  • Labour Market Precarity: Contractualization and weakened collective bargaining in formal sectors have reduced labour’s share of income, intensifying inequality.
  • Need for Wage-Linked Growth: Sustainable growth requires balanced profit–wage dynamics, linking productivity with equitable income distribution to expand internal demand.

3. Expanding R&D and Innovation:

• • Low R&D Spending: India’s gross expenditure on R&D (GERD) stands at 0.64% of GDP, far below that of the U.S., China, Japan, and South Korea, where private enterprise funds over 70% of total R&D.
  • Weak Private Contribution: In India, the private sector contributes only 36%, with concentration in a few industries, pharmaceuticals, IT, defence, and biotechnology.
  • Innovation as a Structural Imperative: To ensure long-term competitiveness, Indian firms must increase basic and applied research spending, moving beyond short-term, profit-driven innovation cycles.

Way Forward: Aligning Private Capital with Public Purpose

• Need for Coordination: The global economic uncertainty necessitates coordinated policy–business action to safeguard growth.
• Government’s Supportive Role: The government has built a supportive framework through fiscal incentives, simplified regulation, infrastructure development, and credit facilitation. Yet, without active private participation, momentum will stall.
• Reorientation of Corporate Priorities: Indian capital must realign its priorities:
  • National Responsibility: Treat national economic stability as a collective responsibility, not merely a policy backdrop.
  • Domestic Reinvestment: Reinvest profits domestically to generate employment and strengthen demand.
  • Wage-Led Expansion: Commit to wage-led growth, ensuring equitable income distribution.
  • R&D Commitment: Integrate R&D-driven innovation as a structural pillar of industrial policy.
• Conclusion: A partnership model — where the state provides the framework and domestic capital drives inclusive, innovation-led expansion — can secure both growth resilience and social legitimacy in the post-globalisation era.

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