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India’s economic history is not a simple journey from state control to free markets. It is a history of repeatedly redesigning the relationship between public authority, private enterprise and social purpose.Karl Polanyi’s famous observation that “laissez-faire was planned” challenges one of the most persistent assumptions about modern capitalism: that markets emerge naturally when governments learn to step aside. Markets require rules, institutions, infrastructure, enforceable contracts, trusted money and political stability. They do not exist in a vacuum, nor are they necessarily the opposite of the state. Historically, the state has often helped create the conditions in which markets can function. India’s economic history offers an especially revealing case because it is often narrated as a movement from state-controlled development before 1991 to market-oriented liberalisation afterwards. That account captures an important transformation, but it is incomplete. India did not simply move from the state to the market. It moved from one relationship between the state and the market to another. That distinction matters again today, when India is investing heavily in infrastructure and seeking greater capabilities in manufacturing, electronics, semiconductors, defence and digital technology. The Union Budget for 2026-27 provides ₹12.22 lakh crore for capital expenditure, while effective capital expenditure is estimated at ₹17.15 lakh crore. The scale of public investment makes one thing clear: the Indian state has not withdrawn from economic life. Yet neither is India returning to the command economy. The more interesting question is therefore not whether India is becoming more statist, but what kind of state capacity it is building and whether that capacity can remain compatible with competitive markets.To understand this trajectory, it is necessary to look beyond 1991. India inherited a profoundly difficult economic structure at independence. Colonial rule had integrated the subcontinent into an imperial economy whose priorities were not identical with those of an independent developmental state. Industrial capacity was limited, infrastructure was inadequate, capital was scarce and technological capabilities were weak. Planning was consequently not merely an ideological preference. It was an attempt to create capabilities that private markets were unlikely to generate quickly enough on their own. The Nehruvian state invested in steel, heavy industry, scientific institutions, dams, infrastructure and public-sector enterprises. In retrospect, some of these choices can certainly be criticised for inefficiency, bureaucratic rigidity or misplaced priorities. But the historical problem the state was attempting to solve should not be forgotten: how could an impoverished post-colonial country acquire the productive foundations of modern economic life? The difficulty came when the instruments created to overcome scarcity began to reproduce it. Licensing, quotas, import controls and bureaucratic permissions increasingly protected established producers from competition. Regulation could become an end in itself, while administrative discretion created opportunities for rent-seeking. The state that had been created to overcome developmental constraints increasingly became one of those constraints. This was the central contradiction of the Licence Raj.Its failure, however, did not prove that the state was unnecessary. It demonstrated something subtler: state intervention is not synonymous with state capability. A government can be large without being capable. It can regulate extensively without regulating well, own enterprises without creating technological leadership, and distribute resources without generating durable productive capacity. Conversely, a capable state may sometimes intervene precisely in order to make greater private competition possible. This distinction is essential to understanding what happened after 1991. The reforms dismantled much of the old regulatory structure, opened the economy further to foreign investment and competition, and gave private enterprise considerably greater freedom. The consequences were transformative. New industries emerged, Indian companies became globally competitive, information technology expanded dramatically and consumers encountered a much more dynamic economy. Yet 1991 was not the moment when the Indian state disappeared. The Reserve Bank of India continued to regulate the financial system; public policy continued to shape agriculture and food security; railways remained predominantly publicly owned; infrastructure continued to depend heavily on public investment; and strategic sectors remained subject to government intervention. What changed was the instrument of intervention. The state increasingly moved away from directly determining who could produce what and towards creating the regulatory, infrastructural and institutional environment within which private actors could compete.This is why describing post-1991 India simply as a “free-market economy” is misleading. A better description is an economy in which markets became more important while the state changed the way in which it exercised economic power. The financial world depicted in Scam 1992 provides a useful cultural illustration of this transition. The series is not significant merely as a morality tale about greed. It captures an economy in which financial markets were expanding faster than the institutions capable of governing their new complexity. Its broader lesson is not that markets are inherently corrupt, but that market expansion and institutional capacity have to develop together. The global financial crisis demonstrated the same principle on a much larger scale. Sophisticated markets could generate extraordinary private returns while simultaneously accumulating systemic risks. When those risks became catastrophic, governments had to intervene. The supposed opposition between market and state consequently became difficult to sustain: markets could generate wealth, but they could also generate risks that only public institutions could contain.This brings us to the most important transformation in contemporary India. A state does not need to own every enterprise to shape an economy. It can build infrastructure, establish standards, provide public platforms, support research, develop skills, regulate systemic risks and create conditions in which private firms can compete. India’s digital public infrastructure illustrates the distinction particularly well. The significance of platforms such as UPI is not simply that payments became digital. Publicly established infrastructure created interoperable rails on which banks, fintech companies, merchants and consumers could build competing services. The state did not need to own every transaction; it created an underlying architecture through which private economic activity could expand. This is fundamentally different from both command economics and classical laissez-faire. The state becomes less an owner of every economic activity than an architect of the conditions under which economic activity takes place.The same logic increasingly appears in India’s semiconductor ambitions, electronics manufacturing, defence production and other strategic sectors. The objective is not necessarily to produce everything domestically, which would be neither practical nor desirable in a deeply interconnected global economy. It is to prevent critical capabilities from becoming permanent vulnerabilities. This is where the contemporary idea of self-reliance requires careful interpretation. Strategic autonomy does not have to mean economic isolation. A globally integrated economy can still seek strategic resilience. The objective is not to eliminate dependence altogether, but to avoid forms of dependence that can become economically or strategically disabling. Strategic interdependence without strategic helplessness is a more useful way of understanding the aspiration.Yet this approach carries its own danger, and India’s earlier economic history provides a warning. Industrial policy can easily become protection for its own sake. A subsidy that permanently shelters an inefficient firm is not equivalent to an incentive that helps an industry develop technology, achieve scale and eventually compete without protection. The historical lesson of the Licence Raj is therefore not “never intervene”. It is to intervene with purpose, measure outcomes, preserve competition and know when to withdraw. Protection should have a reason, subsidies should have measurable objectives, and incentives should ultimately be judged by the productive capabilities they create. When an industry becomes capable of competing independently, protection should not become permanent simply because its beneficiaries have acquired political influence. The test of industrial policy should consequently not be how much money the government spends, but what productive capacity that expenditure creates.This question becomes even more important when the discussion moves from factories and infrastructure to human beings. Polanyi’s “double movement” described the social response to the disruptive consequences of an expanding market economy. Industrialisation transformed labour into a commodity on an unprecedented scale, producing pressures that eventually generated labour protections, welfare institutions and regulation. India’s twenty-first-century problem may look different. Artificial intelligence, automation and platform-based employment are changing not merely the conditions of work but the economic value of different forms of human labour. The Economic Survey 2025-26 describes the gig economy as a structural feature of the labour market, and the continuing expansion of digital and automated economic activity is likely to intensify questions about skills, employment and social security. The answer cannot be to resist technology. India needs artificial intelligence, automation, advanced manufacturing, semiconductors and digital systems if it is to raise productivity. But technological progress does not automatically distribute its gains. Education, healthcare, skills, mobility and social protection will determine who is capable of participating in that transformation.This also changes how welfare itself should be understood. It is often presented as though welfare and economic growth represent competing philosophies, with one concerned with redistribution and the other with production. The distinction is not always so clear. A family pushed into poverty by a medical emergency can lose future earning potential; a child who leaves school because of a temporary household shock loses opportunities that may never return; and a worker without protection against economic shocks may be unable to invest in skills or move into more productive employment. Social protection can therefore function not merely as redistribution after growth, but as insurance that allows people to participate in economic change. At the same time, welfare cannot substitute indefinitely for productive employment, education and economic mobility. The objective should be to protect human capability while expanding the opportunities through which that capability can be used.It is at this point that India’s older intellectual traditions can add something distinctive to the modern state-market debate, provided they are treated seriously rather than as decorative cultural references. The classical Indian framework did not regard artha as illegitimate. Wealth, material security, political authority and productive capacity were necessary dimensions of human life. Yet artha did not exhaust the purposes of existence; it existed within the wider framework of the puruṣārthas: dharma, artha, kāma and mokṣa. This should not be turned into the claim that ancient India possessed a ready-made theory of modern economics. It did not. The Arthaśāstra is not a modern economics textbook, and the Mahābhārata is not a development-policy manual. The significance is conceptual. Wealth was not imagined as a value completely detached from the social and moral order in which it operated.The Bhagavad Gītā’s concept of lokasaṅgraha connects action with the preservation of the wider social order, while the Mahābhārata’s discussions of rājadharma repeatedly place political authority within a framework of obligation. The Arthaśāstra, meanwhile, treats taxation, agriculture, trade, administration and political power as parts of an organised state rather than as isolated economic activities. These traditions should not be artificially collapsed into modern economic theory, nor should they be presented as though they anticipated contemporary development economics. Their usefulness lies elsewhere: they force us to ask whether wealth can be understood independently of the order that sustains it.The Mahābhārata makes this problem particularly dramatic. The Kuru polity does not collapse because it lacks wealth, military power or political resources. Its tragedy develops as power becomes increasingly detached from responsibility, legitimacy and restraint. The epic therefore does not simply condemn artha. Its deeper warning concerns artha severed from dharma. That distinction has a contemporary economic equivalent. A financial system can become sophisticated while becoming detached from productive activity. A corporation can maximise short-term returns while weakening its long-term foundations. A city can become richer while becoming unaffordable to the people whose labour sustains it. An economy can grow while human capability, social trust or ecological resilience deteriorates. The problem is not prosperity itself. The problem is prosperity that consumes the conditions of its own survival.Seen in this light, India’s economic history is better understood not as a straight line from socialism to capitalism, but as a sequence of institutional corrections. Colonial rule left India with the problem of economic sovereignty. Planning attempted to create industrial capability. The Licence Raj demonstrated the dangers of excessive administrative control. Liberalisation released enormous private energy. The post-liberalisation state continued to provide regulation and public investment, while digital public infrastructure demonstrated how government-built platforms could enable private innovation. The current industrial-policy phase is attempting to develop technological and strategic capabilities while remaining integrated with global markets. Each phase corrected something in the previous one, but each also created new risks. That is not necessarily evidence of historical failure. It is what economic development looks like when institutions continually have to adapt to changing circumstances.The question for the next phase is whether India can learn from both sides of this history. The market must remain free enough to innovate and compete, but the state must be capable enough to provide infrastructure, regulate systemic risks and develop long-term capabilities. Industrial policy must be disciplined enough to create competitive industries rather than permanent dependants. Social protection must be strong enough to prevent temporary shocks from destroying human potential. Technology must raise productivity without turning large sections of society into permanent economic outsiders. And growth must remain connected to the social and ecological foundations that make future growth possible. None of this requires choosing one side of the old state-versus-market debate. Indeed, that binary is increasingly inadequate to the economy India is actually building.This is a more demanding vision than either laissez-faire or state control. It rejects the assumption that markets can regulate everything by themselves, but it also rejects the assumption that government can produce prosperity simply by directing more resources. The real challenge is institutional: to build a state capable of creating the conditions for competitive markets without allowing state intervention to become a new form of rent-seeking, and to allow markets to generate wealth without permitting economic value to become the sole measure of social success.India’s most important economic achievement after 1991 was therefore not that it chose the market over the state. It was that it demonstrated how private economic energy could flourish without the state completely withdrawing from economic life. Its next achievement will be harder. It must build markets without allowing markets to become the sole measure of value, and build state capacity without allowing the state to become the sole source of economic power.That may be the deeper lesson of India’s economic history. Polanyi was right that laissez-faire itself required construction. India’s experience suggests a further proposition: markets can create wealth, but institutions give that wealth durability, while society gives it purpose. As India moves towards 2047, the decisive question is therefore not whether the market or the state should win. It is what both are ultimately meant to serve.A rich economy is not necessarily a successful civilisation. The harder achievement is to become richer without losing sight of what the wealth is for.&nbsp;

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