The letter, authored by Venugopal Garre and Nikhil Arela, says India has posted recent gains, but argues that employment stress, weak manufacturing absorption, subsidy-heavy politics and limited AI preparedness could weigh on long-term growth.
Growth gains, but risks ahead
The authors noted that India has made “the correct choice with focus on productive capital expenditure instead of subsidies”, which has supported macroeconomic stability and earnings growth.
However, they cautioned against complacency. “The temptation to extrapolate recent success and underplay how much further there is to go” could prove risky as global supply chains shift and technology cycles accelerate.
They added that India still lags peers in infrastructure, innovation capacity, and preparedness for emerging technologies.
Jobs challenge sharpens with AI
A key concern highlighted in the letter is employment, especially with the rise of generative AI. India’s services sector, powered by a large workforce in IT services and BPOs, has been central to middle-class growth. But “a meaningful share of the roles that lifted this cohort are directly exposed to automation”, the letter said.
It warned that India risks becoming a “user” rather than a “creator” in the AI economy, with most value concentrated in the US and China.
Manufacturing may not absorb labour
The letter expressed doubts about manufacturing’s ability to absorb surplus labour at scale. “Private capex remains selective,” it noted, adding that the much-discussed “China+1” opportunity has been harder to translate into jobs and factories than expected.
As a result, many workers continue to move into “low-end urban services or precarious self-employment”, raising concerns about job quality, the authors say.
Agriculture stuck in low-productivity trap
Agriculture remains a major structural constraint, employing 42-45 per cent of the workforce but contributing only around 15-16 per cent of gross domestic product (GDP).
“These are not solutions; they are recurring responses to a system that has not been reformed,” the letter read.
It called for scaling up irrigation, reducing reliance on subsidies, and investing in storage and logistics to improve farm incomes and efficiency.
Energy, oil dependence a concern
On energy, the authors highlighted inefficiencies in the power sector and heavy reliance on crude oil imports, which account for about 88 per cent of India’s needs.
It recommended accelerating the shift to electric mobility and reducing dependence on internal combustion engine vehicles through a clear phase-out timeline.
“Energy security cannot be achieved without reducing both import dependence and structural inefficiencies,” it said.
AI strategy needs deeper focus
The letter stressed the need for India to build its own AI capabilities rather than rely on global players. “India does not own frontier AI models… If Indian data continues to be used to train global models without building domestic capability, India risks becoming a permanent consumer,” it warned.
It called for investments in compute infrastructure, domestic AI models and stronger data governance frameworks.
Subsidies vs investment debate
The open letter raised concerns over the growing scale of cash transfer schemes across states, estimating annual outlays at ?1.7 trillion to ?2.5 trillion.
While acknowledging their role in boosting consumption, it said such schemes could crowd out capital expenditure. “A rupee locked into broad, politically timed cash schemes is a rupee not building roads, logistics, irrigation… where the multipliers are higher,” it noted.
Low R&D spending, weak public services
India’s R&D spending, at 0.6-0.7 per cent of GDP, remains well below global benchmarks, the letter said, calling for stronger investment in innovation ecosystems.
The authors also flagged a disconnect between taxation and public service delivery, noting that despite a significant tax burden, outcomes in healthcare, education and urban infrastructure remain weak.
Call for decisive reforms
The letter concluded that India’s traditional approach of gradual reforms may no longer be sufficient. “The cost of delay is no longer just slower growth — it is long-term dependence,” it warned.
It further said that India does not lack capital, talent or even ambition. “What it requires now is a sharper willingness to take difficult decisions early, rather than defer them. The window to act is still open, but it is narrowing,’ the letter stated.
Focus on fixing financial sector to boost growth
Bernstein had also written to PM Modi in 2019, following the NDA’s landmark victory in the Lok Sabha polls. It highlighted the need for financial sector reforms to support growth.
In the letter, Garre had said the NDA’s strong mandate brings responsibility to revive the economy, though quick fixes are limited. He stressed the need to recapitalise PSU banks and await the panel led by Bimal Jalan on RBI reserves.
Garre also called for better liquidity and faster resolution of stressed assets under the IBC. A stronger financial system, he said, can lower interest rates and boost demand in the economy.
