AI-led Economic Transformation and Sectoral Impact
An AI-driven cycle of creative destruction is underway with varied effects on economic sectors. Rather than predicting sectoral winners, governments can boost jobs and growth by mitigating frictions in land, labor, and capital usage, enhancing overall economic productivity.
NITI Aayog’s Investment Friendliness Index 2026
- The index assesses states on an 8-pillar, 84-indicator framework, scoring below 60 out of 100.
- The gap arises from governance frictions in factor markets as noted by Prof Karthik Muralidharan.
Land as a Factor of Production
Traditionally seen as a revenue source, land in India is costly compared to subsidized options in other countries like China. Fragmented administrative systems undermine efficient land transactions and valuations.
Land Market Transactions
- The registration system, heavily fragmented across departments, impacts tax, price, and liquidity.
- Registration does not guarantee title; separate systems for land registration and ownership data exacerbate the problem.
Land Acquisition and Disputes
- Compensations based on outdated guideline values lead to disputes, comprising 30% of Supreme Court cases.
- Unique Land Parcel Identification Number (ULPIN) marks progress in resolving these issues.
Utilization and Zoning Challenges
- Converting land for more valuable uses is often slow and inconsistent.
- Zoning permissions and building regulations restrict land utilization, limiting urban densification.
Infrastructure and Economic Growth
Infrastructure plays a crucial role in productivity but faces execution challenges, with only 77% fund utilization across 20 states, leaving ₹2 trillion unused. Delays in project completions further hinder economic progress.
Construction and Maintenance Paradigms
- The "build-neglect-rebuild" cycle persists, with maintenance expenditures lagging.
- Industrial users bear more than 150% of efficient supply costs, cross-subsidizing domestic and agricultural consumers.
State Efforts and Innovations
States like Andhra Pradesh and Karnataka are advancing land and record integrations, yet a market intelligence layer for real-time data visibility and actionability is lacking.
States possess substantial administrative data, and linking this with analytical tools could guide future actions and correct course. These governance improvements are more feasible than policy reforms and crucial for attracting private investors.
