For more than three decades after the 1991 economic reforms, India has debated whether the country should embrace free-market economics completely or return to a stronger industrial policy led by the government. One side argues that the state withdrew too much after liberalisation and must once again guide industry actively. The other warns that excessive government control could revive the failures of the old “Licence Raj” era.

But Chief Economic Adviser V. Anantha Nageswaran believes the debate itself may be misplaced.

Speaking at an economic discussion titled “Growth is Good”, Nageswaran argued that India's real problem was never whether industrial policy existed or not. The real issue, he said, lies in how policies are implemented.

Government intervention never really disappeared
According to Nageswaran, the common belief that India shifted entirely to a free-market economy after 1991 is inaccurate. Government intervention continued in many forms — subsidies, tariff protections, credit support schemes and incentives for small industries.

What changed, he suggested, was not the state's role but the language and style of intervention.

India protected micro, small and medium enterprises for decades. While the intention was to nurture entrepreneurship and employment, the long-term outcome was less encouraging. The country now has millions of tiny firms and a handful of very large corporations, but relatively few mid-sized globally competitive companies.

Economists often describe this as India's “missing middle”.

Competition matters more than protection
Nageswaran used a simple analogy to explain the weakness in India's earlier industrial approach.

A child, he said, cannot develop confidence if constantly shielded from competition. Support is necessary, but overprotection can prevent growth.

India's industrial policy, in many sectors, followed exactly this pattern. Domestic firms were protected from foreign competition for years. But because they operated within sheltered markets, many companies never faced pressure to improve productivity, innovate or compete globally.

When markets opened after liberalisation, several industries were unprepared for global competition.

“The problem was not what we did, but how we did it,” he observed.

A different reading of Nehru's economic vision
Nageswaran also offered a nuanced view of India's first Prime Minister, Jawaharlal Nehru, whose economic policies are often criticised by free-market supporters.

He argued that Nehru's primary objective was economic development and industrial growth, not ideological socialism for its own sake. The mistake, according to Nageswaran, lay less in the intention and more in the instruments used to achieve those goals.

Over time, industrial licensing systems and prolonged state controls evolved into rigid structures serving political and bureaucratic interests rather than economic efficiency.

Why East Asia succeeded
To strengthen his argument, Nageswaran pointed to East Asian economies such as Japan, South Korea, Taiwan and Singapore.

These countries followed strong industrial policies between the 1950s and 1980s. Governments selected priority sectors, directed credit, protected domestic firms and actively shaped industrial growth. Yet they emerged as global manufacturing powers.

At the same time, countries such as the Philippines and Indonesia adopted somewhat similar strategies but failed to achieve comparable results.

The difference, Nageswaran argued, was discipline.

Successful East Asian governments imposed performance standards, encouraged exports, withdrew support from inefficient firms and ensured industries eventually competed globally.

India's second opportunity
For years, many economists believed India had missed its manufacturing moment after World Trade Organization entry by China in 2001 transformed global manufacturing supply chains.

However, global conditions have changed dramatically in recent years.

Brexit, the US-China trade conflict, supply chain disruptions during the COVID-19 pandemic and the Ukraine war exposed the vulnerabilities of excessive dependence on concentrated manufacturing hubs.

As a result, countries across the world — including the United States, Europe, Japan and China — have all returned to industrial policy in various forms.

This, Nageswaran believes, creates a fresh opportunity for India.

The PLI experiment
India's Production Linked Incentive (PLI) scheme represents one of the country's most important recent industrial initiatives.

Unlike older subsidy-driven approaches, the PLI system links incentives directly to production outcomes. Companies receive benefits only after meeting manufacturing targets.

Nageswaran sees this as a healthier approach because it reduces the government's upfront risk while forcing companies to prove their capabilities.

The scheme has shown visible success in sectors such as mobile phone manufacturing and electronics. Yet several other sectors have not performed equally well.

The real test, he suggested, is whether the government will have the political willingness to withdraw support from sectors or companies that fail to deliver.

The danger of excessive protectionism
One of Nageswaran's strongest warnings concerns rising tariff barriers and protectionist policies.

Protective tariffs often appear politically attractive because they provide immediate relief to domestic industries. But over time, excessive protection can weaken competitiveness, reduce efficiency and slow innovation.

Policies designed to save one industry may indirectly raise costs for others.

There is growing concern among economists that India's recent tariff structures are becoming increasingly protection-oriented.

The Tiruppur example
The textile cluster in Tiruppur demonstrates both India's strengths and limitations.

Hundreds of small firms operate together as part of a large export ecosystem worth billions of dollars. The cluster reflects India's entrepreneurial energy and manufacturing potential.

Yet Tiruppur's export scale still remains far smaller than garment hubs such as Dhaka in Bangladesh.

This gap highlights India's continuing struggle to achieve truly global manufacturing competitiveness.

The larger question
India's future industrial success may ultimately depend less on announcing ambitious policies and more on enforcing discipline.

Will subsidies be withdrawn when necessary? Will failing firms continue receiving protection? Can industries be pushed to compete globally rather than remain dependent on state support?

These are the questions that may determine the next chapter of India's economic story.