The Enemy Within

Three internal taxes that could derail India’s growth trajectory

There are moments in the life of a nation when history seems to move in its favour. India appears to be living through one of them. Its economy is growing at a pace that has made the country one of the principal engines of global growth. Its digital transformation has created capabilities that many developed economies are still struggling to replicate at scale. Its infrastructure is being expanded with unprecedented ambition. And its diplomacy has acquired a confidence and strategic weight that increasingly allows India not merely to respond to the changing world, but to influence it.

The world, too, is changing in India’s favour. Supply chains are diversifying. Technology is disrupting established economic hierarchies. The Indo-Pacific is becoming central to global strategy. The Global South is demanding a greater voice. India possesses the scale, geography, market, talent and geopolitical credibility to become one of the principal beneficiaries of this transformation.

Yet there is a paradox at the heart of India’s rise. The biggest threats to India’s growth trajectory may no longer come from outside. They may come from within.

India’s challenge is no longer simply to create opportunities. It is to ensure that its institutions, people and systems have the capacity to convert those opportunities into productivity, prosperity and national power.

These internal constraints can be understood through three interconnected taxes: the Productivity Tax, the Friction Tax and the Opportunity Tax.

The Three Internal Taxes

The three taxes are not separate problems. They reinforce one another.

• Productivity Tax. India produces less economic value than its human and physical resources should allow.
• Friction Tax. Too much time, money and energy are lost navigating regulations, institutions, corruption and weak execution.
• Opportunity Tax. Too many Indians still lack the quality education, health, skills, capital and social mobility needed to participate fully in India’s growth.

Together, these three taxes determine how much of India’s enormous potential actually becomes national wealth and power.

Productivity Tax—India must Produce more with every Worker

India’s greatest long-term economic challenge is not whether it can grow faster for a few years, but whether it can substantially increase the value produced by every Indian worker.

• The Jobs Paradox. A young population is an asset only when it is healthy, educated, skilled and productively employed. The danger is therefore not merely unemployment but underemployment, informal employment and low-productivity employment. India must create millions of productive jobs before its demographic window begins to narrow.
• From Degrees to Capabilities.  India has expanded education enormously, but employers frequently struggle to find people with the capabilities required by emerging industries. The country must move from education to employability, and from employability to productivity—with greater emphasis on vocational training, apprenticeships, technical skills and lifelong learning.
• Manufacturing Challenge. Manufacturing must move beyond assembly towards deeper domestic value addition, scale, design, technology and globally competitive Indian companies. The objective should be not merely to manufacture in India, but to make India a major centre of global production and innovation.
• Agriculture and the Productivity Trap. Agriculture continues to absorb a disproportionately large share of India’s workforce relative to its contribution to the economy. The answer is not to abandon rural India but to create pathways from low-productivity agriculture into food processing, logistics, rural industry, services and other higher-productivity activities.
• Women: India’s Missing Productivity Multiplier. India cannot afford to leave a vast reservoir of female talent underutilised. Greater female economic participation would increase household incomes, deepen the labour pool, strengthen human capital and provide a major additional engine of growth.
• Cities as Productivity Engines. India’s cities will drive the next phase of economic transformation, but congestion, inadequate transport, expensive housing, pollution and weak municipal services can turn them into productivity inhibitors. The objective must be to create productive, liveable and globally competitive Indian cities.
• Technology and the AI Paradox.  AI, automation and digitalisation could dramatically increase productivity. But they could also disrupt the traditional employment ladder before sufficient alternatives emerge. India must use technology to make its people more productive rather than simply making people redundant.

India cannot become a developed economy merely by employing more people. It must enable every worker, enterprise and city to produce substantially more value.

Friction Tax—When the System Slows the Economy

If the Productivity Tax determines how much India can produce, the Friction Tax determines how difficult it is to produce it.

• Regulatory Friction. Every unnecessary permission, complicated compliance requirement, overlapping regulation or policy uncertainty imposes a cost on enterprise. Individually these may seem small. Collectively they become a substantial tax on investment, entrepreneurship and productivity.
• Corruption as an Economic Tax. Corruption is not merely a moral failure. It is an economic distortion. Petty corruption imposes a direct burden on citizens, while systemic corruption can distort allocation of public resources, favour connections over competence, raise transaction costs and weaken confidence in institutions. A competitive economy cannot allow access to opportunity to depend on access to influence.
• Justice and Contract Problem.  Delayed dispute resolution and prolonged litigation raise the cost of doing business. Businesses can price a known regulatory cost. They struggle to price uncertainty. Predictable and timely justice is therefore not simply a legal requirement—it is an economic growth multiplier.
• The Implementation Gap.  India increasingly has ambitious policies. The harder challenge is consistent execution. Fragmented accountability, bureaucratic risk aversion and weak coordination between different levels of government can create a gap between what is announced and what is delivered.
• Infrastructure Without Integration.  India has built roads, railways, ports, airports and digital networks at remarkable speed. But their economic value depends upon integration. A port without efficient rail connectivity, an industrial corridor without reliable power or a highway without an efficient logistics ecosystem represents incomplete connectivity. The next infrastructure revolution must therefore be about integration rather than merely construction.
• Energy and Climate Friction.  Imported energy exposes India to external price shocks, while heat, floods, water stress and pollution increasingly affect agriculture, health, cities and worker productivity. Resilient energy and climate infrastructure must therefore become part of India’s economic strategy.

Every unnecessary permission, delay, litigation, compliance burden and corrupt transaction is a small tax on an individual—but collectively they become a tax on the Indian economy.

Opportunity Tax—When Potential does not become Participation

The third tax is perhaps the most consequential because it concerns the human beings who must ultimately power India’s transformation.

• Unequal Foundations.  Children do not enter India’s economic race from equal starting points. Differences in nutrition, healthcare, schooling, technology access and geography accumulate over time. By adulthood, what appears to be a difference in merit may partly reflect a difference in opportunity. India therefore needs to invest in capability before competition.
• Education Challenge.  Quality foundational education must become a national priority. Degrees alone cannot create a productive workforce. India needs stronger learning outcomes, vocational pathways, apprenticeships, digital access and industry-linked skills.
• Healthcare and Nutrition Deficit.  A demographic dividend is meaningless if children grow up malnourished or workers remain constrained by preventable health problems. Human capital begins long before an individual enters the labour market.
• Women and Economic Opportunity.  The question of women’s participation belongs here as much as in the Productivity Tax. India must create an environment in which women can enter, remain and advance in the workforce—supported by safe mobility, childcare, flexible work and equal access to skills and finance.
• Reservation and Social Mobility.  Historical exclusion cannot simply be wished away, and affirmative action has an important role in social justice and representation. But India’s economic transformation requires a broader question: How can affirmative action evolve alongside a much stronger architecture of equal opportunity? The debate should move beyond the simplistic “reservation versus merit” binary. Reservation can address representation; it cannot by itself repair unequal foundations. India must simultaneously improve schooling, nutrition, healthcare, skills, scholarships, technology access and economic mobility so that disadvantaged Indians have a genuine opportunity to acquire the capabilities needed to compete. The ultimate objective should be mobility—not permanent dependence on inherited disadvantage.
• Rural India and Economic Mobility.  India must not create a choice between stagnant villages and overburdened cities. Rural transformation should connect agriculture with food processing, logistics, manufacturing, services and digital markets, allowing people to move into higher-productivity activities without necessarily abandoning their communities.
• Social Cohesion as Economic Infrastructure.  Economic transformation requires trust—between citizens and institutions, workers and employers, states and the Centre, and communities and one another. Persistent social friction consumes economic and political energy that could otherwise be devoted to nation-building.

The greatest waste in India may not be its natural resources. It may be the millions of human capabilities that never receive the opportunity to fully express themselves.

From Growth to Transformation

India does not need to solve every problem simultaneously. It needs to identify the constraints that can prevent the others from being solved.

• Productivity Tax must be reduced through better human capital, manufacturing, skills, female workforce participation, infrastructure integration and technology-led productivity.
• Friction Tax must be attacked through simpler regulation, faster justice, transparent governance, stronger contract enforcement, technology-enabled administration and ruthless attention to execution.
• Opportunity Tax must be reduced through quality foundational education, nutrition, healthcare, skilling, access to capital and technology, and genuine pathways to social and economic mobility.

Above all, India needs an Execution State—not necessarily a larger state, but a faster, simpler, more accountable and more capable one.

India’s next transformation must therefore be an execution revolution.

The Future Cannot Be Outsourced

The world is opening doors for India.

Technology is creating unprecedented possibilities. Global supply chains are searching for resilience. Geopolitics is creating strategic space. Capital is looking for new destinations. India’s market, talent and scale are increasingly impossible for the world to ignore.

But opportunity is not destiny.

India’s external environment may give it the opportunity to become a great power. Only its internal transformation can make it one.

The Productivity Tax must fall. The Friction Tax must shrink. The Opportunity Tax must disappear.

Because the India of 2047 will not be determined simply by how many opportunities the world offers us. It will be determined by whether we possess the institutional capacity, human capability and social confidence to seize them.

India’s greatest battle for 2047 will not be fought at its borders. It will be fought within its own systems, institutions and society—to ensure that nothing within India prevents the India of possibility from becoming the India of performance.

ABOUT THE AUTHOR

Lt Gen Rajeev Chaudhry (Retd) is a social observer and writes on contemporary national and international issues,  strategic implications of infrastructure development towards national power, geo-moral dimension of international relations and leadership nuances in changing social construct.