The Need to Use Creative Destruction

Bringing in fresh blood often requires purging old systems. But that has hardly been the case for the Indian economy, where protection has been prioritized over risk-taking

- SANJEEV SANYAL

Both natural and economic ecosystems have one thing in common—they evolve through a process of "creative destruction." The inefficient are weeded out over time and replaced by those that are more competent. Thus, the competitiveness of an economy is critically dependent on its ability to encourage and endure a churn despite all the disruptions it may cause in the short run. Unfortunately, evidence suggests that India still does not have a level of churn that one expects of an economy based on high levels of innovation and risk-taking.

One simple way to gauge creative destruction is to look at the churn in the top 10 companies by market capitalization. Comparing those who made the top 10 in March 2005 to those in March 2025, it is quite striking that seven of them are the same—Reliance, Tata Consultancy Services, Infosys, State Bank of India, Bharti Airtel, Hindustan Unilever, and ICICI Bank. Of the new entrants, Life Insurance Corporation is an old public sector enterprise that happened to be listed recently. The other two—HDFC and Bajaj Finance—are hardly examples of new blood.

Contrast this with what happened in the US over the same period. Only one company—Microsoft—managed to stay in the top 10 by market capitalization. Companies like General Electric, Exxon Mobil, AIG, and Walmart have been replaced by Meta, Alphabet, Amazon, and Tesla. It is not just the companies, but the successful sectors that have changed. This is what has allowed the US to remain an economic superpower.