Global brokerage Bernstein has written an open letter to Prime Minister Narendra Modi, warning that India risks under-delivering on its economic potential unless it addresses key structural issues around jobs, subsidies and investment.
The letter, which revisits themes first raised in 2019, comes at a time when India has moved up global GDP rankings but continues to face challenges in employment, innovation and infrastructure.
One of the biggest concerns flagged in the letter is the impact of artificial intelligence on India’s services-led growth model.
For over two decades, India’s economy has relied on a large English-speaking workforce employed in IT services, GCCs and BPOs. This 10–15 million strong workforce has played a key role in building the middle class and driving consumption.
However, Bernstein warned that this model is now under threat.
Many of these roles are directly exposed to automation as AI adoption increases. At the same time, much of the value creation in AI — including platforms and intellectual property — remains concentrated in the US and China.
The risk, the note said, is that India could become a user of AI technologies without capturing a meaningful share of the economic gains.
The letter also raised concerns over the rising use of cash transfer schemes across states.
It noted that such schemes are expanding rapidly, with total annual outlays estimated at Rs 1.7–2.5 trillion, or around 0.5% of GDP.
Examples cited include Madhya Pradesh’s Ladli Behna scheme, which pays Rs 1,500 per month to around 13 million women, and similar large-scale programmes in Maharashtra and Bihar.
While acknowledging that cash transfers can support consumption and reduce vulnerability, Bernstein flagged a larger concern.
“The issue is not that they do nothing; it is that, for an investment-starved emerging economy, it is a very expensive way to buy growth,” the note said.
It added that money spent on such schemes could otherwise be invested in infrastructure, human capital or research and development.
The report warned that if such schemes continue to expand, they could squeeze capital expenditure, narrow fiscal space and increase inflation risks.
Bernstein also highlighted India’s low spending on research and development, estimated at just 0.6–0.7% of GDP, well below global benchmarks.
It said that without stronger investment in innovation, India’s ambitions in areas such as semiconductors, artificial intelligence and deep technology may remain limited.
The note added that innovation ecosystems require sustained capital, talent and institutional support, and warned against policies that weaken merit-based systems.
The letter framed these concerns as part of a broader structural challenge.
While India has shown that policy alignment can deliver macro stability and growth, the next phase of development will depend on deeper reforms.
It warned against over-relying on recent success and said that global trends such as supply chain shifts and technological change require a more forward-looking strategy.
The note also pointed to a growing risk that India may lag global peers in areas such as physical infrastructure, innovation capacity and readiness for the next technology wave.
Bernstein’s message is clear — India’s growth story remains strong, but sustaining it will require balancing welfare spending with investment, preparing the workforce for AI disruption, and stepping up innovation.
Without these changes, the letter cautioned, India may struggle to fully capture the opportunities of the next decade.