WHY INDIA'S NEXT REFORM MUST BE BEHAVIOURAL

When Reason Meets Reality: Forget corruption.

- By Vikas Singh

Ignore inefficiency. The greatest drag on India’s economic growth is the silent, insidious enemy hiding in plain sight: the uncorrected psychology of its own people. This national blind spot may be costing India a staggering five per cent of its GDP every single year.

The real drag on growth is how people think: how voters reward the present over the future, how officials avoid risk, and how consumers chase identity over value. Behavioural economics now offers a mirror to India’s contradictions. If the next wave of reforms are to succeed, they must look beyond spreadsheets and into the deep-seated psychology that shapes every decision, from the polling booth to the boardroom.

Take the politics of freebies. Loan waivers, free power, and gold schemes persist because voters reward immediacy over prudence. Present bias makes a free gas cylinder feel more valuable than a future school. This psychology explains why even financially distressed states continue to promise new subsidies. Behavioural economics does not justify such populism, but it explains its hold. Until politics is redesigned to make tomorrow visible and credible, the tyranny of the present will dominate the ballot box.

In finance, the difference between participation and passivity often lies in design. India's Jan Dhan Yojana opened over 480 million bank accounts, yet nearly half remain dormant. By contrast, automatic enrolment in the Employees' Provident Fund-raised participation dramatically without new campaigns. Defaults matter. When saving is the default, people save; when spending is, they spend.

Behavioural interventions can be transformative. India’s behavioural opportunity is democratic, making the right choice easier, not compulsory.