The Innovation Imperative

The 2025 Economics Nobel reminds India that lasting prosperity comes from open markets, fearless innovation and a culture that rewards curiosity.

Philippe Aghion, Peter Howitt and Joel Mokyr

This year, the Nobel prize for Economics was awarded to Joel Mokyr, Philippe Aghion and Peter Howitt for explaining how innovation drives long-term growth and how new ideas replace old ones through what economists call “creative destruction.” The award carries a strong message for every nation: prosperity depends on a steady stream of ideas, fair competition and the wide use of better technologies and practices.

Mokyr, a noted economic historian, asked a question that sounds simple but has shaped our modern world. For most of human history, people lived with low incomes and short lives. Why did this pattern change only in the past two centuries? His answer highlights the partnership between two kinds of knowledge. One is scientific understanding; the other is practical know-how that turns theory into tools and machines. Societies that encourage curiosity, debate and freedom to experiment advance faster because they make both kinds of knowledge flourish together. These ideas make Mokyr’s work not just historical but powerfully relevant to the future of development.

Philippe Aghion and Peter Howitt built the formal model behind this story. In their view, economies grow when innovators create better products or processes, forcing existing firms to improve or exit. This process of creative destruction is not chaos; it is renewal. It explains why productivity rises over time and why it stalls when powerful incumbents block newcomers. The Nobel committee noted that their theory captures both the promise of innovation and the danger of stagnation when competition weakens.

The timing of this message could not be more appropriate. Many rich countries are facing slow productivity, aging populations and fiscal stress. Developing nations, meanwhile, want to move from growth based on adding labour and capital to growth powered by knowledge and efficiency. The prize reminds us that economies cannot coast into prosperity. They must climb, and the ladder’s rungs are research, competition, finance, skills, and open institutions. If these weaken, the system slows down. If they strengthen, innovation spreads and growth becomes self-sustaining.

Simple reforms

For India, the lessons are clear. The country has grown rapidly over the past decade by investing in infrastructure, digital systems and formalisation. The next leap must come from a rise in productivity across agriculture, manufacturing and services. This will happen only when innovation reaches every corner of the economy. It is not enough for new ideas to remain in big cities or elite labs. Improved seeds and sensors must reach farmers, efficient machines must reach small workshops, and affordable diagnostic devices must reach rural clinics. Simple reforms can make this easier: faster clearances, reliable power and broadband, and consistent standards that keep supply chains running.

Policy must also find the right balance between intellectual property and competition. Businesses need incentives to invest in research, but markets must remain open to challengers. Support for emerging sectors such as clean energy, water technology, healthcare and agri-tech should be time-bound and linked to performance. Procurement rules should reward quality and openness so that better solutions can win.

Innovation needs money that matches its risks. Many experiments fail, and that is part of learning. Public programs that combine grants, guarantees and long-term finance can help promising ideas cross the gap between prototype and scale. For small enterprises, quick invoice payments and cash-flow-based loans are often more useful than tax concessions. In deep-tech areas, shared early-stage research and milestone-based funding can speed up progress while spreading lessons from both success and failure.

People remain at the heart of this story. India needs scientists and engineers who can push frontiers, but it also needs millions of skilled technicians who can install, maintain and repair equipment. Short, modular courses tied to clear certificates and strong apprenticeships can bridge this gap. When a medium-sized factory in a smaller city can find a trained maintenance engineer within days, productivity rises immediately. Mokyr’s work reminds us that practical skills are not secondary to theory—they complete the circle of innovation.

Change always creates unease. Workers and firms need confidence that they can survive transitions. Training programs must be linked to real jobs, and social benefits should be portable so people can move where opportunities arise. Affordable housing, reliable transport and flexible safety nets make adaptation easier. This reduces the fear of change and helps society embrace new technologies faster.

Inclusive innovation

Innovation is also global. Ideas, talent and data flow across borders, and countries that close themselves off lose out. The 2025 Nobel has warned against rising protectionism. India should remain open to collaboration and learn from global research networks while offering its own strengths to the world. Its frugal innovations - low-cost medical devices, affordable water filters, efficient solar systems - are valuable not only at home but across the developing world. By sharing such solutions, India can become a leader in inclusive innovation.

The green transition offers another arena where the Nobel lessons apply. Clean technologies must expand quickly, while older, polluting systems must be phased out on clear timelines. This is creative destruction on a planetary scale.

The deeper message of this Nobel is that sustained growth is rare and fragile. It depends on keeping the channels open through which new ideas challenge old ones. When those channels narrow, frustration grows. When they widen, opportunity expands. The choice before nations is not between change and safety, but between managed renewal that shares its benefits and stagnation that spreads its costs.

The 2025 Economics Nobel offers India a map for the decade ahead. Protect competition, fund science, share knowledge, and ensure that workers can adapt to change. Encourage universities, startups and industries to learn from each other. If these principles guide policy, innovation will become a habit rather than an event, and growth will become a steady journey rather than a brief sprint.

(The author is the former Director, Agharkar Research Institute, Pune; Visiting Professor, IIT Bombay. Views personal.)