New Delhi: In a sharply worded India Strategy note dated April 23, global research firm Bernstein has raised critical concerns about the structural foundations of India’s growth trajectory, cautioning that the country risks missing a narrowing window of opportunity unless decisive policy actions are taken. The open letter to Prime Minister Narendra Modi revisits themes first highlighted in 2019 but argues that the urgency has only intensified, even as India climbs global GDP rankings.
At the heart of Bernstein’s assessment lies what it describes as an “existential” employment challenge. India’s 10-15 million-strong IT and BPO workforce, long considered the backbone of the country’s aspirational middle class, is now increasingly vulnerable to disruption from generative AI. The report questions whether India’s next phase of growth will generate high-value jobs such as engineers and product developers, or predominantly low-productivity roles like gig work and delivery services. With manufacturing yet to scale sufficiently to absorb displaced workers, the employment outlook remains uncertain.
Agriculture, employing nearly 42-45% of India’s workforce while contributing just 15-16% to GDP, is another area of concern. Bernstein notes that the sector remains trapped in what it calls a “1970s policy loop,” marked by small landholdings, monsoon dependency, and a reliance on subsidies and loan waivers. The rollback of the farm laws has further complicated reform efforts. The firm recommends redirecting the ₹3-4 trillion annual subsidy burden toward direct income transfers and investing heavily in cold storage and logistics infrastructure to improve efficiency and resilience.
On the technology front, Bernstein warns that India risks becoming a “permanent AI consumer” rather than a global innovator. Despite rapid data generation and increasing digital adoption, the country lacks ownership of any frontier AI models. The report emphasizes that building domestic capabilities, through funding foundation models, expanding compute infrastructure, and encouraging global AI firms to list locally, is critical to retaining value within the economy and preventing the hollowing out of the IT services sector.
Manufacturing ambitions, too, appear to be outpacing reality. While initiatives like the Production Linked Incentive (PLI) scheme have created momentum, manufacturing’s share of GDP remains stagnant at 16-17%. Dependence on imports, particularly in high-value components such as EV battery cells, underscores the lack of depth in domestic supply chains. Bernstein calls for earlier and more strategic entry into emerging sectors like robotics, automation, and advanced materials.
The report also highlights the growing fiscal pressure from expanding cash transfer schemes, particularly those targeted at women. Estimated at ₹1.7-2.5 trillion annually, these schemes are beginning to crowd out capital expenditure in some states, potentially undermining long-term productivity gains. While acknowledging the role of targeted welfare, Bernstein cautions against the risks of permanent, election-driven transfers.
Finally, India’s R&D spending-hovering at 0.6-0.7% of GDP, is deemed insufficient for a country with ambitions in semiconductors and deep technology. Without significant increases in funding and improvements in talent pipelines, these goals may remain out of reach.
Bernstein concludes with a stark warning: India possesses the capital, talent, and ambition needed for sustained growth, but must demonstrate a greater willingness to undertake difficult reforms. The opportunity remains, but the time to act is rapidly running out.
