A case study of what visionary bureaucracy can achieve in India

• The opportunity before India is considerable. Few countries possess India’s scale, diversity, institutional depth, and democratic legitimacy. 

• If these assets are combined with a bureaucracy that is capable of acting entrepreneurially (disciplined, reversible, and learning-oriented), the State can move beyond being a regulator of economic activity to a catalyst for structural transformation. 

• The Economic Survey 2025-26 highlights that in a world defined by uncertainty, it is not the most controlling States that will succeed, but those that learn fastest, adapt most intelligently, and retain the confidence to correct course. 

• India has the institutional foundations to do so. The task now is to align mindset, incentives, and accountability with that possibility.

The shift to industry promotion

• India’s experience in developing a globally competitive software industry illustrates a distinctive mode of state capacity in action. 

• From the 1960s to the early 1980s, the electronics and computing sector was governed by a “produce and protect” regime, characterised by State-owned enterprises, import substitution, and pervasive controls over private and foreign participation. 

• Despite substantial public investment, the State proved unable to coordinate production, technology selection, and market development, resulting in fragmentation, delays, and weak outcomes.

• A decisive shift occurred in the mid-1980s, when the State moved away from direct production and protection towards broad-based industry promotion. 

• Rather than withdrawing from the sector or selecting national champions, public policy focused on reducing regulatory barriers, enabling private entry, and lowering ecosystem-wide costs. 

• This included recognising software as an industry, easing foreign exchange and import restrictions for exporters, investing in technical education, expanding telecommunications infrastructure, and creating technology parks that offered reliable power, connectivity, and single-window clearances.

• The shift to industry promotion was accompanied by changes in leadership and administrative orientation. 

• Senior officials more open to private initiative and foreign participation were deputed in the Department of Electronics. 

• At the time, a growing cohort of Indian expatriates trained at the IITs and holding executive positions in US technology firms, recognised India’s technical talent but remained wary of the country’s restrictive regulatory environment, particularly in the aftermath of IBM’s exit in 1978. 

• With the change in policy stance, foreign firms began to test India’s openness. 

• In 1985, the government approved Citibank’s proposal to establish a private satellite link to support remote software services, followed shortly by a similar approval for Texas Instruments to set up an offshore software development centre in Bangalore. 

• Reflecting the extent of regulatory flexibility exercised during this phase, N. Seshagiri, one of the original members of the Bhabha Committee and later the principal adviser on electronics policy to the Prime Minister of India, candidly observed that “we broke 26 separate rules to accommodate Texas Instruments’ Bangalore subsidiary and are willing to break more.”

• Texas Instruments was the first multinational company to set up an R&D centre in India in 1985.

• Crucially, these promotional policies were neutral across firms and scale. 

• They did not privilege individual incumbents, nor did they insulate domestic players from competition. 

• Instead, they supported the industry as a whole, allowing multiple firms to emerge, compete, and integrate with global markets. 

• The result was a fragmented yet dynamic ecosystem that proved resilient, innovative, and export-oriented.

• This experience underscores that effective State capacity does not require pervasive control or discretionary intervention. 

• When institutional effort is redirected from protection and micromanagement towards facilitation, coordination, and provision of public goods, the State can shape outcomes decisively while preserving competition and private initiative.