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India’s economic rise is often branded as inevitable, a story of demographic advantage, entrepreneurial capacity and global relevance. Yet behind the optimism lies a deeper structural weakness that deserves greater scrutiny. India has embraced capitalism only partially, and the consequences of this incomplete transition are now visible in jobs, taxation and inequality.
At first glance, India’s macroeconomic performance appears impressive. Growth rates remain among the highest in the world, foreign investment continues to flow, and digital innovation has transformed sectors from finance to governance. However, economic growth alone does not define a mature capitalist system. What distinguishes successful capitalist economies is not merely GDP expansion, but the creation of widespread formal employment, a broad tax base and a sustainable link between productivity and welfare.
India falls short on all three counts.
One of the clearest indicators of this imbalance is the country’s extremely narrow income tax base. Only a small fraction of Indians pay direct income tax, far lower than in advanced economies and even below many emerging markets. This is not simply a question of tax compliance; it reflects a deeper failure to generate formal, well-paid employment at scale. When most workers operate in the informal sector, without contracts, job security or social protection, the foundations of fiscal sustainability remain weak.
In functional capitalist economies, the economic cycle is straightforward: production creates jobs, jobs generate income, income is taxed, and taxes fund public goods and welfare. In India, this cycle is broken. The state increasingly relies on indirect taxes and deficit financing, while public spending is skewed towards subsidies rather than long-term investment in infrastructure, education and innovation. Welfare, instead of complementing productivity, often substitutes for it.
This structural distortion has historical roots. India’s post-independence economic model prioritised state control and redistribution over enterprise and competition. Liberalisation in the 1990s marked a decisive shift, but it was cautious and uneven. Key sectors remained insulated, labour reforms were politically sensitive, and large voting blocs, particularly in agriculture and informal trade, were kept outside the tax and regulatory net.
Market reforms advanced, but without the institutional depth needed to formalise employment or expand manufacturing. As a result, India’s workforce remains trapped in low-productivity activities. Agriculture continues to absorb a disproportionate share of labour despite declining output contribution, while manufacturing has failed to become a large-scale employer. Services have grown rapidly, but often in informal or precarious forms.
The economy produces wealth, but not enough stable livelihoods. This imbalance has also contributed to growing economic concentration. While entrepreneurship has flourished at the top end of the economy, wealth accumulation is increasingly skewed. A small segment benefits from global integration and capital access, while millions remain excluded from the formal economy. This dynamic risks morphing capitalism into an elite, driven system, where opportunity is constrained by access and connections rather than productivity and innovation.
Crucially, this is not an argument against markets or private enterprise. On the contrary, it is a case for completing India’s transition to a rules-based, inclusive capitalist system. That means expanding formal employment, rationalising labour laws, broadening the tax base and ensuring that welfare systems reward participation as well as need.
It also requires political courage, moving beyond short-term populism towards long-term economic institution-building. India stands at an inflection point. The country can continue with growth that looks impressive on paper but remains socially shallow, or it can pursue reforms that anchor capitalism in productivity, employment and shared prosperity. The real challenge is not choosing between welfare and markets, but designing an economy where the two reinforce each other.
The comprehensive growth can’t be judged on the fast expansion of economy but how the growth impacting the people’s lives in a positive manner.
If the issues of farmers, employment, Gender inequality, MSME and credit constraints, regional inequality are not taken seriously, the growth remains under question. India’s pathway lies in converting economic growth into social development for all the citizens.
Until that happens, India’s capitalism will remain unfinished, and its full economic potential unrealised.
Dr Aman Jaswal is Lecturer University of Staffordshire, Prof. Aslam Khan Professor, Nelson Mandela Centre for Peace and Conflict Resolution
