Creative destruction and India’s growth story: Lessons from Nobel economists

Siddharth Roy 

(siddharth001.roy@gmail.com)

When the 2025 Nobel Prize in Economics was announced this week, it went to three thinkers whose work has quietly reshaped how the world understands growth. Joel Mokyr of Northwestern University, Philippe Aghion of College de France and INSEAD, and Peter Howitt of Brown University were honoured for explaining something that now feels obvious yet has profound implications: sustained economic growth doesn’t happen by chance. It is driven by innovation, by societies that continually create, absorb, and adapt new ideas, and by institutions that allow change, even when that change is disruptive. For India, that insight could not be more relevant. We aspire to become a $10-trillion economy in the next couple of decades. Yet that ambition will remain a mirage unless we internalize what the Nobel trio has been saying for years: that the real engine of growth is not just labour, land, or capital, but ideas. The countries that grow and keep growing are those that make innovation a way of life.

Mokyr’s research on the Industrial Revolution showed that for centuries, economies stagnated because inventions, however brilliant, rarely spread or stuck. Only when societies began to value curiosity, experimentation and science, and when institutions enabled knowledge to flow freely, did growth become continuous. Aghion and Howitt, through their famous theory of creative destruction, formalized how innovation drives growth by replacing the old with the new. Every new technology, firm or idea displaces something outdated — it’s a process that’s painful in the short run but vital for long-term progress. For India, this means one thing clearly: growth cannot be sustained by mere replication or by relying on traditional sectors alone. We cannot hope to prosper simply by adding more workers to old factories or exporting the same goods cheaper. We must create an economy that rewards innovation, encourages risk-taking, and continuously renews itself.

That requires more than a catchy slogan. It calls for an ecosystem that balances openness with stability, one that welcomes competition, protects new entrants, and provides safety nets for those disrupted in the process. Innovation-driven growth flourishes only where ideas can compete freely and failures are treated as learning, not stigma.

To be fair, India has taken meaningful steps in this direction. Over the past decade, programmes like the Atal Innovation Mission and Atal Tinkering Labs have tried to spark creativity in schools, while Startup India and the Fund of Funds have nurtured thousands of young ventures. The Digital India and India Stack initiatives, from Aadhaar to UPI, have laid a foundation for a digital economy unlike any other in the developing world. Schemes such as Production Linked Incentives (PLI) have sought to boost domestic manufacturing and technological capabilities in sunrise sectors like electronics, solar, and semiconductors. Research institutions and universities now host dozens of incubation centres and innovation hubs, and the idea of entrepreneurship has gone mainstream. India’s startups have made global headlines, from fintech and edtech to green energy — and the country ranks among the top five in the world for unicorns. But while the progress is real, it is uneven. India still spends less than 1 per cent of its GDP on research and development, a fraction of what innovation powerhouses like the US, South Korea or Israel invest. University–industry collaboration remains weak. Bureaucratic barriers continue to discourage risk-taking, and regulations are often outdated. Innovation policy remains fragmented and short-term, dependent on the enthusiasm of a few individuals rather than institutional strength.

To truly harness the Nobel-winning ideas, India must go further and faster. First, we need to dramatically scale up our R&D investment. Raising R&D spending to at least 2 to 3 per cent of GDP should be a national goal. The proposed National Research Foundation must be empowered and funded as an independent, merit-driven agency, insulated from political cycles. It should back both basic and applied science, from AI and biotechnology to clean energy and advanced materials. Second, our universities must be at the heart of the innovation ecosystem. We need much stronger collaboration among universities, industry and government. Academic research should not end up in journals alone — it should translate into products, processes and patents. This means creating technology transfer offices, encouraging university spin-offs, and incentivising joint research with industry.

Third, India must refine its regulatory and intellectual property environment. Protecting innovation is vital, but overprotection can stifle follow-on creativity. A balance must be struck with clear, transparent IPR rules and agile competition policies that prevent monopolies and encourage new entrants. Regulatory sandboxes in fintech, biotech, and green tech should be expanded to let innovators experiment safely.

Fourth, we must prepare society for creative destruction. Innovation inevitably disrupts existing sectors and livelihoods. That’s not a reason to resist it, but it’s a reason to build resilience. India needs a strong framework for reskilling, upskilling and lifelong learning, supported by both the government and the private sector. Displaced workers should have access to retraining, relocation and transition support. Innovation without inclusion will only deepen inequality. Fifth, India should pursue bold, mission-orientated programmes: large, coordinated initiatives in clean energy, water security, rural technology, healthcare and climate adaptation. Countries like the US and EU have shown how targeted missions, driven by public funding but executed with private collaboration, can deliver breakthrough results. India’s scale and talent make it an ideal laboratory for such missions.

Equally important, innovation must not be confined to big cities or elite institutions. The next wave of ideas will come from small towns and rural clusters — from startup businesses in Assam, engineers in Coimbatore, coders in Indore, or agritech entrepreneurs in Nagpur. The government and private investors should build regional innovation hubs, provide local incubation support, and ensure reliable digital and physical infrastructure everywhere.

Finally, we need institutions with long-term memory. Innovation policy cannot depend on five-year plans or ministerial reshuffles. It requires continuity, evaluation, and adaptability — learning from what works and fixing what doesn’t. Building independent, professionally managed bodies to oversee innovation strategy is essential.

None of this is easy. Creative destruction, by its nature, creates winners and losers. It can strain social cohesion and provoke resistance from entrenched interests. But as the Nobel laureates have reminded us, without this churn, societies stagnate. The role of government is not to prevent change but to guide and cushion it, ensuring that innovation remains inclusive, sustainable and humane. India stands at a defining moment. The digital foundations are in place, the entrepreneurial spirit is alive, and the world is looking to us as a potential growth engine. What we need now is coherence — a shared national commitment to make innovation the organizing principle of our economy.

If we can align our institutions, education, and policies with that vision; if we can make curiosity, creativity, and courage our economic virtues, then the path to sustained prosperity is not a dream but an achievable goal.

The Nobel this year is more than a prize for three economists; it is a message to nations like ours: the future belongs to those who dare to innovate, who embrace change instead of fearing it. For India, that future is well within reach if we choose to build it.