Innovation is the key determinant of economic growth and social welfare.

From a Coimbatore Workshop to the Wealth of Nations

In the late 1990s, Arunachalam Muruganantham, a school dropout working in a Coimbatore workshop, discovered that his wife could not afford sanitary pads and was using old rags instead. Over years of ridicule he built a simple machine that could make low-cost pads, and he chose to sell it to women's self-help groups across rural India rather than to a large company. One idea created livelihoods, improved women's health and broke a taboo at the same time; in 2016 the nation honoured him with the Padma Shri. His story holds the argument of this essay in miniature. Innovation is the most powerful long-run engine of both economic growth and social welfare, but it becomes the key determinant only when institutions, skills and a sense of purpose carry its fruits to the many.

What do we mean by innovation? It is not merely invention in a laboratory. It is the putting of a new idea to use: a new product, a new process, a new way of organising a market or delivering a service. Joseph Schumpeter, writing in "Capitalism, Socialism and Democracy" (1942), called its ceaseless churn creative destruction, in which the new displaces the old and lifts the economy to a higher level. Innovation can be technological, like a vaccine; organisational, like a cooperative; or social, like a new way of reaching the poor. All three matter for the topic, because growth and welfare are not the same thing.

The economic case is powerful. When Robert Solow examined American growth in 1957, he found that only a small part of the rise in output per worker came from more capital; most of it was a residual he attributed to technical change. Paul Romer, who shared the Nobel Prize in 2018, went further and showed that ideas, unlike machines, can be used by everyone at once, so an economy that keeps producing them need not run into diminishing returns. The Nobel of 2025 to Joel Mokyr, Philippe Aghion and Peter Howitt honoured the same insight: sustained growth is innovation-driven growth. History bears it out. The steam engine, electricity and the microchip each reshaped the wealth of nations, while economies that stopped innovating, however rich in land or labour, stagnated.

India's own experience confirms the link. The Green Revolution of the 1960s, built on high-yielding seeds brought in by Norman Borlaug and adapted by M.S. Swaminathan and Indian scientists, turned a country dependent on food imports into one that could feed itself. Operation Flood, led by Verghese Kurien from 1970, used the cooperative model of Amul to make India the world's largest milk producer. The information technology revolution created a services export base that, according to NITI Aayog's 2025 report on innovation, now ranks India first in the world in ICT services exports. India's rise in the Global Innovation Index from 81st in 2015 to 38th in 2025 tracks the growing weight of ideas in its economy.

Innovation achieves excellence only when it is inclusive and democratised across society.

Yet growth is only half of the topic. Innovation shapes social welfare just as deeply, and here Indian ingenuity shines brightest when it is frugal. The Jaipur Foot, designed in 1968 by the craftsman Ram Chandra Sharma with the surgeon P.K. Sethi, gave mobility to millions of amputees for a fraction of the cost of Western prosthetics. Aravind Eye Care, founded by Dr. G. Venkataswamy in Madurai in 1976, applied assembly-line efficiency to cataract surgery so that the paying patient could subsidise the poor one. The Unified Payments Interface and Aadhaar-based direct transfers have carried money to the poorest without middlemen, and the CoWIN platform and the indigenous Covaxin helped India vaccinate its people at scale during the pandemic. Chandrayaan-3's landing near the Moon's south pole in 2023 showed that frugal innovation can reach the frontier itself.

Moreover, innovation is not only technological. Some of the greatest gains in welfare have come from new ways of organising people. Kerala's Kudumbashree, launched in 1998, and the self-help group movement turned collective savings into credit and voice for millions of women. Bangladesh's Grameen Bank reinvented lending for those without collateral. Social audits of MGNREGA works, first institutionalised by Andhra Pradesh, made accountability a public event. These innovations raised welfare directly, often without any new machine at all.

Yet honesty requires the antithesis. Innovation is a key determinant, but is it the key determinant? Economists remind us that capital and labour still matter: Paul Krugman's essay "The Myth of Asia's Miracle" (1994) argued that much of East Asia's early growth came from mobilising more inputs rather than from rising productivity. Daron Acemoglu, Simon Johnson and James Robinson, awarded the Nobel in 2024, showed that inclusive institutions decide whether a society rewards innovation or smothers it. Without the rule of law, secure property, open markets and good schools, ideas neither arise nor spread. And innovation does not automatically raise welfare. The Green Revolution that fed India also drained Punjab's groundwater and degraded its soils; automation and artificial intelligence can raise output while displacing workers; and the gains of digital platforms can concentrate in a few hands. Innovation can widen the gap between those who create and own it and those who merely bear its disruptions.

The synthesis is therefore clear. Innovation is the most important long-run driver of growth, but its effect on welfare depends on direction and diffusion. Direction asks what problems innovators choose to solve: cheap pads and prosthetic limbs, or only luxuries for the few. Diffusion asks how widely the benefits spread, which depends on education, infrastructure and public policy. Mariana Mazzucato's study "The Entrepreneurial State" (2013) showed that many technologies inside the smartphone, from the internet to GPS, grew out of public research, a reminder that the state is not a bystander but a co-creator of innovation that can steer it towards public ends.

India's task follows from this. Its research spending remains low, and the Press Information Bureau notes that the government still provides about 64 per cent of gross expenditure on research and development, with private industry contributing only about 36 per cent. The ₹1 lakh crore Research Development and Innovation Scheme launched in November 2025, the Anusandhan National Research Foundation and the National Education Policy 2020's emphasis on research and critical thinking aim to change this. Equally vital are linking universities to industry, protecting intellectual property without blocking access to essential medicines, nurturing start-ups beyond the metro clusters, and building mission-oriented programmes for clean energy, health and water. Skilling must accompany automation so that workers ride the change rather than fall to it.

Muruganantham's machine did not succeed because it was the most advanced device of its time. It succeeded because it was aimed at a real need, designed for those who had been left out, and shared in a way that created incomes as well as products. When innovation is joined to inclusion, it becomes the surest determinant of both a richer economy and a better society. India's ambition to become a developed nation by 2047 will therefore rest not only on how much it invents, but on how widely and how wisely it shares what it invents.