From Human Capability to National Capability: Rethinking India's Development Conversation

The Shifting Development Conversation

The economic reforms of 1991 marked one of the most consequential turning points in independent India's development journey. By dismantling much of the country's tightly controlled economic regime, opening previously protected sectors to greater private participation and foreign investment, integrating more closely with the global economy, and seeking to accelerate growth, employment, and foreign exchange earnings - the reforms fundamentally reshaped India's economic trajectory. The three and a half decades that have followed witnessed not only remarkable economic transformation but also a fascinating evolution in the country's development conversation. As India's economy expanded and markets opened, each decade seemed to produce its own defining question — not because the previous questions had been answered completely, but because the country's principal constraints have kept changing.

Amartya Sen and the Capability Turn

In the years following liberalization, the optimism surrounding economic reforms was accompanied by an equally vigorous academic critique. India's economy was growing rapidly, cities were transforming, and new sectors were emerging. Yet a persistent question echoed through universities and development literature: growth for whom? The memorable expression from that period— "India looks like islands of California amidst a sea of Sub-Saharan Africa"—captured a widely shared concern that economic expansion had left behind large sections of Indian society.

Among the most influential voices in this debate was economist and philosopher Amartya Sen. His Capability Approach shifted attention away from economic output alone and towards what people were actually able to do and become. Markets, he argued, could create opportunities only if individuals possessed the capabilities to participate in them. Those capabilities depended upon what he called "social facilities"—education, healthcare, nutrition, sanitation, and other public provisions that expanded human freedom and enabled meaningful participation in economic life.

For many of us who followed these debates during the early and mid 2010s, this argument was deeply persuasive. It challenged the comforting assumption that economic growth would automatically translate into human development. It reminded policy-makers that prosperity could not simply be measured in terms of GDP, investments, or exports, but also by whether ordinary citizens possessed the capabilities required to lead productive and dignified lives.

The influence of this school of thought extended far beyond academia. It shaped policy discussions on education, public health, nutrition, sanitation, and social protection. Even those who disagreed with Sen's broader political economy generally accepted the central proposition that human development was not merely a consequence of economic growth but also one of its essential preconditions.

From Growth to Inequality

By the late 2010s, however, the development conversation gradually evolved once again. The question was no longer simply whether economic growth was accompanied by adequate social development. Increasingly, the debate centred on inequality. Was India's rapid GDP growth disproportionately benefiting a small segment of society? Were wealth concentration, regional disparities, and unequal access to opportunities becoming defining features of India's development trajectory?

Research papers, international reports, and newspaper columns increasingly focused on income distribution, wealth concentration, and the relationship between economic growth and inequality. Once again, these were legitimate concerns. A rapidly growing economy cannot indefinitely ignore questions of inclusion and equity.

Today's Conversation — and What It Might Be Missing

Today, however, the mainstream policy conversation appears to have shifted yet again. Discussions in business newspapers, policy conferences, and media conclaves increasingly revolve around improving ease of doing business, de-regulation, free trade agreements, Production Linked Incentive schemes, digital public infrastructure, financial incentives, private investment, and asset monetization. These are all important instruments for accelerating economic growth in an increasingly competitive global economy. Few would dispute their significance.

Yet as I have followed these discussions over the past few years, I have found myself wondering whether another, equally important conversation has gradually receded into the background.

This thought crystallized recently while reading the coverage of the Reserve Bank of India's latest Monetary Policy Committee meeting, in the Economic Times. The accompanying commentary discussed the RBI's concerns regarding warming conditions in the Pacific Ocean, the possibility of El Niño, uneven monsoon behaviour and the implications these could have for agriculture, inflation, and GDP growth. Economists quoted in the discussion naturally analysed what such developments might mean for inflation forecasts, monetary policy, and economic growth. An unnamed policy-maker, meanwhile, spoke about the government's efforts to strengthen resilience against such disruptions.

There was nothing surprising about either perspective. Managing inflation and forecasting growth are central responsibilities of a modern central bank, while governments naturally seek to mitigate the effects of economic shocks. Yet the juxtaposition prompted a different reflection.

One conversation was primarily concerned with understanding and managing the consequences of disruption. The other hinted, perhaps unintentionally, at a prior question: how can a country build itself in such a way that the same disruption causes less damage, in the first place?

The distinction may appear subtle, but I believe it is becoming increasingly important.

India today faces an unusually complex external environment. Climate variability is becoming more pronounced. Monsoon patterns are growing less predictable. Global supply chains continue to experience periodic disruptions arising from geopolitical tensions and changing trade policies. Commodity prices remain vulnerable to events occurring thousands of kilometres away. Technologies are evolving at unprecedented speed, reshaping industries, labour markets, and global competition.

In such an environment, the challenge before policy-makers extends beyond responding effectively to shocks after they occur. It also involves systematically reducing the economy's structural vulnerability to those shocks over time.

This is where I increasingly feel that India's development conversation may need to evolve once more.

The earlier emphasis on human capability remains indispensable. The later concern with inequality remains equally relevant. Likewise, today's efforts to improve competitiveness through regulatory reforms, digitalisation, trade agreements, and manufacturing incentives are essential components of economic strategy.

But perhaps they are no longer sufficient by themselves.

Perhaps the next stage of India's development requires us to ask a different question altogether — not only how to expand opportunity, not only how to accelerate growth, and not only how to distribute its benefits more equitably - but how to build the enduring public capabilities that make growth itself more productive, more resilient and more sustainable.

That, I believe, is a different conversation from the ones we have been having over the past three decades. And it may well become one of the defining development questions of the decade ahead.

The Missing Layer: National Capability

The answer, I believe, lies in recognizing that India's principal development bottlenecks have gradually changed.

For much of the post-liberalization period, the central challenge was to expand human capability. Millions of Indians lacked access to quality schools, healthcare, nutrition, sanitation, and other basic public services. Strengthening these social foundations was not only morally imperative but also economically sensible. A modern economy cannot fully utilize the potential of people who have been denied the basic means to develop their capabilities.

But as India's economy has matured and become increasingly integrated with the world, another set of constraints has become more visible.

Across sectors, one encounters a familiar paradox. Universities and colleges produce graduates, yet industries often struggle to find work-ready talent. Scientific institutions generate research, yet relatively little of it reaches commercial production. Farmers increase production, yet frequently remain disconnected from value addition and organised markets. Startups emerge with promising technologies, yet many struggle to scale. Manufacturing expands in some sectors while remaining bottlenecked on imported technologies, components, or production ecosystems in others.

These are not failures of human capability alone. Nor can they be explained simply by the absence of market competition.

They point towards something else—a missing layer of national capability.

Human capability enables individuals to participate in economic life. National capability determines how effectively an economy transforms those individual capabilities into sustained productivity, innovation, and resilience.

This distinction matters because national development is not merely a statistical, economic, or sociological exercise.

Statistics tell us how an economy is performing. Economics explains how resources are allocated. Sociology helps us understand institutions and social dynamics. Each offers indispensable insights. Yet none, by itself, fully answers another equally important question: what capabilities must a nation deliberately build if it wishes to become more productive, more innovative, and more resilient over successive decades?

Three Layers of National Capability

Increasingly, I find myself thinking that these capabilities emerge through three interconnected layers.

The first is scientific capability — the ability to generate new knowledge, develop new technologies, and continuously push the frontiers of science and innovation.

The second is engineering capability — the ability to translate scientific knowledge into reliable systems, products, infrastructure, and operational solutions that function at scale.

The third is industrial capability — the ability to diffuse those technologies and engineered systems throughout the economy, creating production ecosystems, employment opportunities, and competitive industries.

Human capability remains the foundation upon which all three rest. But without these additional layers, human capability alone cannot fully realise its economic potential.

Why Markets Don't Build This Alone

Neither can these capabilities be expected to emerge automatically through market forces alone.

Markets are extraordinarily effective at allocating resources, discovering prices, and encouraging innovation. But they often underinvest in institutions and infrastructures whose benefits extend far beyond any individual firm. Such investments generate spillovers across industries, regions and generations. Their returns are frequently long-term, diffuse and difficult for any single private actor to capture.

Yet it would be incomplete to lay this gap at the door of markets alone. The Indian state has itself frequently underinvested in these connective institutions — not for lack of capacity, but because such infrastructure is politically unglamorous. Its payoffs are diffuse, delayed, and rarely traceable to a single budget, scheme, or election. Governments generally find it easier to fund visible, announceable schemes than to sustain the quieter, decades-long institution-building that connective infrastructure requires. This is not necessarily a failure of any political ideology, but a failure of political economy — the same asymmetry between long-gestation public goods and short-cycle political incentives that shapes underinvestment everywhere.

Not Larger Government, But More Deliberate Government

This is precisely where public policy should assume a different role — not merely as regulator or financier, but as an architect of national capability.

This does not necessarily imply larger government. It implies a more deliberate government.

It requires carefully designed public institutions, interoperable infrastructure, standards, research ecosystems, testing facilities, logistics networks, engineering platforms, and industry-academia interfaces that enable thousands of private enterprises to innovate, compete, and collaborate more effectively.

India already possesses working examples of this logic, even if they remain too few and too scattered. SCL Mohali functions as precisely such a bridge — a shared fabrication facility that allows academic and startup chip designers, who could never individually afford a fab, to test and tape out their designs. Institutions like the Central Manufacturing Technology Institute and India's network of toolrooms perform an analogous role for manufacturing, offering MSMEs shared access to precision tooling and prototyping infrastructure they could not build on their own. The Telecom Engineering Centre's testing and certification labs serve the same function for domestic telecom equipment makers, letting them prove compliance without each replicating expensive certification capability in-house.

What these examples share is not their sector but their logic: a shared, publicly anchored middle layer that lowers the capital and capability threshold for hundreds of private actors at once. The task ahead is acting on this framework — building many more such institutions in close coordination and collaboration with industry associations and interested state governments, who are often better placed than the Centre alone to identify where a sector's missing middle actually sits.

Every Sector Has Its Missing Middle

Over the past several months, while reflecting upon subjects as diverse as semiconductor ecosystems, data infrastructure, AI-led manufacturing, urban development, water management, higher education, communications infrastructure, logistics development, housing, and workforce transitions - I have been struck by how frequently this same pattern reappears.

Every sector seems to have its own missing middle — the institutions and public capabilities that connect one stage of development with the next.

The middle layer infrastructures and institutions that connect research with industry; education with employment; farms with processing and markets; digital infrastructure with productive enterprise; etc.

They are rarely glamorous. They seldom dominate political speeches. Yet they often determine whether a country's human talent is converted into lasting national capability.

Seen from this perspective, many of India's contemporary vulnerabilities begin to look different.

Climate uncertainty is no longer simply a meteorological problem. It becomes a question of irrigation systems, water management, agricultural science, storage, logistics and resilient rural infrastructure.

Global supply-chain disruptions become not merely trade problems but questions of domestic manufacturing capability, technological depth and industrial diversification.

Artificial intelligence becomes not simply a software story but one involving computing infrastructure, engineering talent, specialised education and industrial adoption.

Development, in other words, increasingly appears less about maximizing this year's economic output and more about systematically expanding the nation's productive capacity over decades.

Conclusion: Building the Capacity to Keep Building

Perhaps that is why the RBI's recent comments on climate risks remained in my mind. They reminded me that while economists understandably focus on forecasting how shocks influence inflation and growth, another conversation deserves equal attention: how can a nation build itself so that those shocks become progressively less damaging?

That question, I believe, does not replace the earlier discussions on human development, inequality, or economic reform.

It builds upon them.

If the first three decades after liberalisation taught us the importance of markets, human capability, and inclusive growth, perhaps the next decade will increasingly be defined by another idea: the deliberate construction of national capability.

Not because growth has ceased to matter.

Not because human development has become less important.

But because in an era of climate uncertainty, technological disruption, and geopolitical fragmentation, a nation's long-term prosperity will depend not only on the capabilities of its people, but also on the capabilities of the public institutions and infrastructures that allow those people to create, produce, innovate, and adapt - together.

Human capability allows individuals to participate in development.

National capability determines whether a nation can continually create, renew, and sustain development itself.