The Economic Survey of India 2025 highlights a disparity between rising corporate profits and stagnant wage growth in India. It attributes slow wage increases to factors such as the 2019 economic slowdown, the COVID-19 pandemic, and an excess workforce supply. This may impede demand and exacerbate income inequality.

Flagging a surge in corporate profits, the survey observed a lag in proportionate wage increases. According to the survey, this may curb demand and result in an economic slowdown that could adversely affect growth prospects. Sustained economic growth hinges on bolstering employment incomes, which directly fuel consumer spending and spur investment in production capacity.

Innovations lacking in startups

Corporate India is hesitant to invest due to several factors that impede ease of doing business, despite numerous reforms, including reduced corporate taxes. Issues such as land acquisition, inadequate infrastructure, high tax burdens, and the perception of an uneven playing field—where only a few large business groups can thrive—have led to a lack of confidence in market stability for smaller businesses.

For context, consider the story of Elon Musk, who transitioned from South Africa to Canada and later to the United States. Musk’s rise, which includes ownership stakes in Tesla, SpaceX, and X (formerly Twitter), underscores how an open economy with clear pathways for innovation and investment can foster success. As of January 22, 2025, Musk's net worth was estimated at $436 billion by the Bloomberg Billionaires Index.

The story of the legendary Indian cricketer Erapalli Prasanna provides a different perspective. Prasanna, an electrical engineer, credited his engineering background for his world-class cricketing techniques. Another legend from Karnataka, Anil Kumble, also holds an engineering degree. Despite venture capital investments in Indian startups, innovations have been lacking. Many Indian companies are run by MBA graduates, business heirs, or marketers. Successful western startups, however, are often founded by engineers. Engineers have a higher propensity for innovation, and promoting this culture may help foster investment.

Regulatory and compliance frameworks

India has taken significant steps to create a business-friendly environment aligned with international standards. Its ranking of 39th among 133 economies in the Global Innovation Index (GII) 2024 reflects progress in developing an innovation ecosystem. Strong policy frameworks, increased research and development (R&D) investments, and targeted startup support underpin this progress.

Simplifying regulatory and compliance frameworks has been critical. In the 2023 Union Budget, the central government announced reducing over 39,000 compliances and decriminalizing more than 3,400 legal provisions. However, India still lags behind larger nations in metrics like starting a business, enforcing contracts, and registering property. It can take 68 days to register a business at a cost of 7.4% of the property’s value—far longer and costlier than in OECD high-income economies. Resolving commercial disputes can take 1,445 days through local courts—three times higher than other countries.

India has taken steps to simplify starting a business by ending filing fees for key company forms. However, the number of steps remains cumbersome. In Mumbai, it takes 10 steps to start a business compared to an average of five in high-income OECD nations. Completing the process takes roughly twice as long (18 days versus 9.2 days in OECD countries).

International companies often struggle in India due to issues like regulatory flip-flops, high tariff barriers, red tape, perplexing land policies, and infrastructure challenges. Many multinational companies, including General Motors, Vodafone, Holcim, and BYD, have exited the Indian market. These challenges persist despite India’s large and growing domestic market, inexpensive labor, English-speaking population, decent economic growth, and favorable geopolitical position.

Need for more reforms and deregulation

"The legislation, rules, and regulations enacted by the union and state governments have over time created barriers to the smooth flow of ideas, organization, money, and entrepreneurship," said Gautam Chikermane, Vice President of the Observer Research Foundation. Unfortunately, these views have been parroted for decades, indicating continued government inaction. According to PwC India's former infrastructure leader Manish Agarwal, strategic investors have stayed away despite ongoing foreign direct investment.

"India needs to ensure proper project preparation timelines for public-private projects, provide balanced risk-sharing guidelines, and enforce contracts properly," Agarwal emphasized.

India has increased scrutiny of Chinese companies, citing geopolitical and security concerns. Liu Zongyi, a senior fellow at the Institute for International Strategic and Security Studies, said that India’s stance aligns with the U.S. "Indo-Pacific strategy" to contain China’s rise. In July 2024, India initiated an anti-dumping probe into aluminum frames for solar panels from China.

Recent developments suggest that Indian governments are becoming more aware of these shortcomings. With appropriate reforms, India may yet overcome its status as a laggard democracy and emerge as a leader in global investment.

(The author is an Indian Army veteran and contemporary affairs commentator. The views are personal. He can be reached at kl.viswanathan@gmail.com)