Answer

Introduction

The 2025 Nobel Prize in Economics was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their work on innovation-driven growth and the role of ‘creative destruction.’ Their research underscores how sustained economic growth depends on technological change, adaptability, and the continuous renewal of firms under sound economic policy.

Body

Innovation and Sustained Economic Growth

• Technological Advancements Drive Productivity: Innovation enhances efficiency, reduces production costs, and increases output, directly boosting GDP growth.
  Eg: Government policies like India’s National Innovation Policy and schemes such as Startup India foster R&D and entrepreneurship, translating innovation into sustained growth.
• Public Investment in Research and Infrastructure: State-supported innovation ecosystems enable industries to modernize and compete globally.
  Eg: Coordinated policies under Make in India and Digital India have promoted technological diffusion across sectors like manufacturing and ICT.
• Financial and Institutional Support for Innovation: Economic policies that ensure access to capital and patent protection encourage risk-taking and creativity in firms.
  Eg: The Atal Innovation Mission and tax incentives for R&D strengthen the innovation-to-growth pipeline.

Societal Openness to Change and Sustained Economic Growth

• Acceptance of New Technologies and Skills: Societies open to adopting modern technology and reskilling workers experience faster productivity transitions.
  Eg: Policies like Skill India Mission and PM Kaushal Vikas Yojana help labor adapt to new economic realities, sustaining growth.
• Encouraging Entrepreneurship and Inclusivity: Openness to social mobility and diverse participation fosters creativity and market expansion.
  Eg: Economic reforms supporting MSMEs and women entrepreneurs under Stand-Up India promote inclusive, innovation-led growth.
• Institutional Flexibility and Policy Adaptation: Progressive policies that adjust to global trends and digital transformation enable economies to remain competitive.
  Eg: India’s adaptive digital governance and fintech regulations have supported rapid growth in the startup and services sectors.

Firm-Level Creative Destruction and Sustained Economic Growth 

• Reallocation of Resources to Productive Firms: Creative destruction replaces outdated firms with efficient ones, improving overall productivity.
  Eg: Market liberalization and competition policies since 1991 have allowed efficient firms to thrive while phasing out unproductive ones.
• Encouragement of Competition and Innovation: Policies fostering open markets and reducing entry barriers stimulate innovation through healthy competition.
  Eg: Competition Act (2002) and FDI reforms encourage dynamic restructuring in industries like telecom and automotive.
• Integration with Global Value Chains: Firm-level restructuring supported by trade and industrial policies enables continuous technological upgrading.
  Eg: The Production-Linked Incentive (PLI) Scheme incentivizes firms to innovate and modernize, sustaining export-led growth.

Conclusion

To achieve lasting growth, policy must nurture innovation, allow failing firms to exit, and support the transition to new ones. Complementing market processes with strategic interventions such as R&D incentives, social safety nets, and regulatory flexibility helps economies evolve and remain resilient.

DOWNLOAD PDF