India's leapfrog moment: A coordinated push can reshape growth path

As India nears the $3,000 per capita mark, a coordinated push in skills, clean energy and AI could help it leapfrog the middle-income trap

India confronts an extraordinary leapfrog moment. Its gross domestic product (GDP) per capita is expected to cross $3,000 this year — the threshold at which countries either accelerate towards high-income status or stall into prolonged middle-income stagnation. But India’s moment is distinctive in a way that makes the standard development playbook insufficient and a bolder strategy not just possible but necessary. 

Three structural transformations are converging simultaneously for us: Building a highly skilled workforce to capture the demographic dividend, transitioning the energy system from fossil fuels to clean energy, and restructuring the economy around artificial intelligence (AI) and advanced automation. Each is consequential on its own. Together, pursued as a coordinated surge, they offer India the opportunity to leapfrog the middle-income trap entirely, compressing into 10-20 years what most countries have attempted sequentially over 40-50 years. 

The World Bank’s 2024 World Development Report framed the development playbook. To escape the middle-income trap, countries must master a 3i strategy of investment, infusion of technology from abroad, and innovation. Each phase is pursued in sequence, with each building on the last. India cannot afford to sequence; we must pursue all three simultaneously. Skilled workers build and operate clean energy and AI infrastructure; clean energy powers the data centres the AI economy requires; and AI raises the productivity that makes high-income status achievable. This compounding effect is our leapfrog opportunity. 

China demonstrated what a coordinated investment surge at this income level can achieve. When China passed through the $1,500 per capita range in the early 2000s, it sustained gross capital formation at 40-45 per cent of GDP for over a decade. By the time it crossed $3,000 around 2008, the results were visible: More than 40,000 kilometres of high-speed rail, research universities with annual budgets in the billions, and manufacturing capacity that transformed the global economy. It was not a bet on one sector. It was a simultaneous surge across physical infrastructure, human capital, and industrial capability. 

The composition of this investment was as significant. Domestic corporate investment expanded rapidly as manufacturing capacity scaled across multiple sectors. State-directed credit flowed through large banking institutions into infrastructure networks, energy systems, industrial zones, and urban development. Government investment reinforced these trends through large national infrastructure programmes. Foreign direct investment also played an important role, bringing capital as well as technology transfer and integration into global manufacturing supply chains. Portfolio flows were relatively limited because of China’s controlled capital account, but the overall scale of investment generated a powerful expansion of productive capacity across the economy. India’s gross capital formation currently stands at roughly 33 per cent of GDP. At India’s current GDP of approximately $4 trillion, reaching China’s peak investment intensity would require an additional $300 to $400 billion annually, sustained over at least a decade. 

India’s investment surge must first be funnelled into primary, secondary, and university education, and workforce skilling. India has the world’s youngest large population, with millions entering the workforce each year. The $300 billion IT services industry, India’s greatest development success of three decades, now faces progressive automation by systems being built in the United States and China. A young engineer entering the workforce today needs capabilities that India's institutions are not yet funded to provide. The entire government allocation for all 23 IITs combined is approximately $1.3 billion, against Tsinghua University's $5.7 billion. 

Skilling the workforce for the AI economy requires investment in research and teaching institutions at globally competitive levels. India’s fertility rate has already fallen below replacement level: The demographic window that makes this investment so valuable is narrowing. 

The energy transformation gives India a structural advantage. India’s solar and wind resources are among the best in the world, and the economics of renewable generation now favours rapid build-out. Several trillion dollars of investment in generation, transmission, storage, and green industrial systems would not only decarbonise the economy but also create the energy infrastructure the AI economy requires. Sovereign AI capability cannot be built on a grid that remains dependent on imported fossil fuels. 

The AI transformation is where the leapfrog opportunity is most visible. The US is committing trillions of dollars to establish dominance in AI computing infrastructure, frontier models, and semiconductor supply chains. The platforms, foundation models, and distribution architectures being built now will define the terms on which every other economy engages with the intelligence revolution. India has a billion users, the world’s largest digital public infrastructure stack, and demonstrated capacity to set terms for global technology platforms. These are real sources of leverage, but we need to invest now in compute, data, and sovereign model capability. 

India has begun each of these transitions. The production-linked incentive (PLI) schemes, the National Green Hydrogen Mission, the massive renewable energy buildout, the semiconductor programme, and the AI mission all represent genuine commitments. The constraint is not vision, but scale. Each initiative, taken alone, is well below the threshold required to be transformative. The leapfrog opportunity requires that they be pursued together. 

Most importantly, this leapfrog moment demands a fundamental shift in how India deploys capital. India’s financial system remains geared to short-duration lending; all three transformations require five- to 10-year commitments at high risk. What is needed is a constellation of investment vehicles — sovereign funds modelled on and scaled well beyond the National Investment and Infrastructure Fund (NIIF) as well as corporate consortia collectively committing hundreds of billions of dollars to long-duration infrastructure and high-payoff research. We also need capital markets that structurally support such allocations through appropriate portfolio mandates for pension funds, insurance companies, and domestic institutions. China has mobilised state-directed capital at this scale. The European Union is debating the same architecture through the Draghi report. India must build its own version. 

The Samridh Bharat Indians aspire to is an achievable outcome of a coordinated investment surge across the three transformations already underway. The compounding returns are available to any country with the institutional capacity to claim them. What we need now is the national resolve and the investment intensity to convert this leapfrog moment into a leapfrog outcome. 

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The writer is president, Everstone Group, and visiting professor in practice at London School of Economics. He is a former Union minister and Lok Sabha MP. Views are personal