India risks under-delivering without deeper reforms: Bernstein’s open letter to PM Modi

India’s growth story could fall short of its potential unless long-pending structural reforms are accelerated, Bernstein said in an open letter to the Prime Minister Narendra Modi, warning against complacency despite recent macroeconomic gains.

The letter acknowledged that policy choices in recent years have supported stability. “India has moved up the global GDP league tables and made the correct choice with focus on productive capital expenditure instead of subsidies,” it said. 

However, it cautioned that “the temptation to extrapolate recent success and underplay how much further there is to go” could prove costly.

AI threat to services jobs

A key concern flagged is employment, particularly as artificial intelligence begins to disrupt India’s services-led model. “A meaningful share of the roles that lifted this cohort are directly exposed to automation,” the letter noted, adding that “the risk is that India becomes a user of these technologies without capturing a commensurate share of the upside.”

Manufacturing may not fill the gap

Manufacturing, often seen as a fallback for job creation, may not be able to absorb this shift at scale. “At the current trajectory, it is unlikely to do so at scale,” Bernstein said, pointing to selective private capex and shallow supply chains despite the China+1 opportunity.

Bernstein highlighted a challenge, “Does the next leg of our growth story create more engineers, product builders and innovators, or does it mostly create more drivers, delivery staff and domestic helps?”

Risk of falling behind in AI

On artificial intelligence, Bernstein warned that India risks falling behind in value capture. “If Indian data continues to be used to train global models without building domestic capability, India risks becoming a permanent consumer in the AI economy,” it said.

The letter also flagged concerns over the growing reliance on welfare spending. “For an investment-starved emerging economy, it is a very expensive way to buy growth,” it said, noting that large, unconditional cash transfers could crowd out investments in infrastructure, education and R&D.

The note argues that India’s incremental reform approach may no longer be sufficient. “The cost of delay is no longer just slower growth—it is long-term dependence,” it said, adding that while “the window to act is still open,” it “is narrowing.”