By Amit Kapoor and Meenakshi Ajith
The real test of a nation is not how it grows in fair weather, but how steady it stands when the storm breaks. Along with rest of the world, India has endured a pandemic, navigated global economic shocks and is continues to grapple with converging climate risks; from heatwaves, floods, cyclones and droughts arriving simultaneously and sequentially all at once. This has now become the rhythm of a new age. In such times, competitiveness can no longer be captured through GDP or export charts. A country that grows quickly but collapses after every climate shock can no longer be called “competitive” in any sense. The new currency for inclusive growth and prosperity is resilience: The ability to tackle climate risks, protect livelihoods and keep growth on course even amid cascading crises.
Measuring growth in terms of competitiveness gained global traction in the late 20th century, when nations began to benchmark themselves not only by raw growth but by their ability to innovate, attract investment, and expand exports. Michael Porter’s The Competitive Advantage of Nations (1990) crystallised this thinking, proposing that national prosperity rested on the interplay of factor endowments, demand conditions, industrial ecosystems, and firm rivalry[1]. Competitiveness became the guidepost of economic policy in an era shaped by globalization, trade liberalisation, and rapid technological change. Today, the forces of trade and technology have only grown more radical in their impact. Artificial intelligence, digital platforms, and shifting global supply chains are redrawing the map of competitiveness as sharply as container shipping or the internet once did. Nations are being measured not only by how efficiently they produce, but by how quickly they adapt to disruptive change.
In India, the reforms of 1991 marked a decisive break from inward-looking policies and reoriented the economy towards global integration. At that point in time, competitiveness became synonymous with liberalisation, efficiency and market dynamism. The steady rise of GDP growth rates, explosion of IT and services exports and the remarkable expansion of the middle class made was hailed as competitive growth. Yet, over time, the world changed, and history also teaches us that the yardstick of progress can never remain the same. The evidence is now more evident than ever. According to the World Bank’s People in a Changing Climate (2023), labour productivity losses from heat stress already average 5.7 percent in lower-middle-income countries: a category that includes India and are projected to rise further as global temperatures increase[2]. By 2030, heat stress alone could cost India the equivalent of 34 million full-time jobs or nearly USD 450 billion in lost economic output as per estimates by the International Labor Organization[3]. This is not an abstract risk but a lived reality for construction workers, agricultural labourers, and millions in the informal sector whose productivity underpins India’s competitiveness.
Agriculture, still the livelihood base for over 40 percent of the Indian workforce, faces acute vulnerability. The CCDR notes that climate variability could reduce farm incomes in unirrigated areas by up to 25 percent. Recurrent floods in Assam, the droughts of Bundelkhand, and the 2019 Chennai water crisis are not isolated events, but they illustrate how climate extremes are rewriting the economic map of India. For instance, the cyclone Amphan in 2020 caused damages of USD 13 billion, overwhelming state budgets and exposing the fragility of infrastructure systems. In 2023, flash floods in Himachal Pradesh caused losses exceeding USD 1.5 billion, while record-breaking heatwaves disrupted sowing cycles across India’s food belt. The fiscal costs are equally sobering. Between 2010 and 2020, India lost USD 87 billion annually to climate-related disasters which is nearly 3 percent of GDP (World Bank, 2023)[4]. These shocks repeatedly force governments to divert resources from development spending to relief and recovery, locking public finance into a cycle of reaction rather than preparation.
Competitiveness is therefore not just the speed of growth but the durability and inclusivity of economic growth. This reframing brings into focus the centrality of climate transition to India’s development trajectory. It shifts the debate from whether climate policy is a cost to recognising that climate inaction is the true drag on competitiveness. A nation that invests in climate-smart agriculture, resilient infrastructure, and adaptive social protection is not indulging in “green spending”; it is securing the very foundations of its economic strength. The good news is that growth in technology, from digital platforms to artificial intelligence, has opened entirely new and more effective pathways for a climate transition, whether in clean energy deployment, precision agriculture, or adaptive infrastructure. The bad news is that the speed and scale of action still lag far behind the urgency of the crisis.
Before asking whether climate transition is an impediment or an enabler of competitiveness, it is critical to first examine what such a transition in India entails: the risks it must address, the opportunities it creates, and the structural shifts it demands. To address these questions, the subsequent sections first looks into the state of India’s competitiveness today. It then maps the contours of India’s climate transition including the commitments, policy instruments, and structural shifts involved. Finally, it evaluates whether and under what conditions the climate transition can function as an enabler of competitiveness rather than an impediment.
The Competitiveness Landscape in India Today
India’s rising economic stature is now gaining global attention. With estimates placing it as the world’s fifth-largest economy in nominal GDP and third in purchasing power parity terms, India’s ascent appears strong with its annual GDP growth rate at 6.5% in 2024[5]. While such headline figures reflect scale, they often obscure more fundamental questions: What does this growth mean for productivity? How inclusive and broad-based is this economic expansion? India’s global rankings across economic indices in 2024 present a picture of rising stature but mixed foundations. India is home to one of the fastest-growing populations of millionaires and billionaires, and four of its cities now rank among the fastest-developing globally. Yet, this outward economic momentum contrasts with weaker performance on competitiveness, innovation, and talent development. These gaps suggest that while India is advancing in headline metrics, the underlying enablers of productivity remain underdeveloped. This becomes particularly evident when viewed through the lens of GDP per person employed which is a critical measure of how efficiently an economy turns labour into output and in this, India continues to lag significantly behind both global and middle-income peers.
As of 2024, India’s GDP per person employed stood at approximately $24,468, a modest increase from $23,700 in 2023. This level is significantly below that of middle-income countries, which averaged $34,243, and sharply trails China, which has reached over $45,494 which is nearly double India’s level. Even within the lower-middle income category, India is only slightly above the group average of $22,178, underscoring the structural challenges it faces in translating labour input into economic output[6]. This gap in productivity is not simply a reflection of slower growth but a signal of deeper economic inefficiencies. In 2024, India’s GDP per capita (PPP, constant 2021 international $), which is a reflection of living standards and economic productivity, stood at $9,817, marking steady growth from 2015 but leaving it far behind other emerging economies: China at $23,846 (2.4× higher), the world average at $21,268, and the middle-income group at $14,902. India is only slightly above the lower-middle-income average of $8,789, highlighting how limited its catch-up has been. While Brazil ($19,648) and Indonesia ($14,470) continue to sustain stronger positions, South Africa has stagnated but still remains ahead of India[7]. The broader trend shows India growing faster than the global average but from too low a base to narrow gaps meaningfully, underscoring persistent productivity and structural constraints. This challenge is further accentuated by its low employment-to-population ratio. In 2024, India’s employment-to-population ratio stood at just 53.2 percent, significantly lower than China’s 62.4 percent and the middle-income country average of nearly 58 percent.[8]
This divergence between size and prosperity underscores the deeper challenge before us: growth by itself is not competitiveness, and GDP does not automatically translate into shared prosperity. Competitiveness matters today because the ground rules of the global economy are being rewritten. We live in an era of structural rewiring: supply chains are being shortened, reshored and reconfigured for geopolitical resilience; technology is advancing with AI being dubbed the new electricity; climate change and polycrises from pandemics to conflicts are reshaping risk. In this churn, traditional levers of cost and scale on which emerging economies like India long relied are no longer sufficient. What global markets now prize are productive ecosystems, policy coherence, and predictability. Being cheap is not enough; what matters is how well systems function together. That is what separates countries that merely grow from those that prosper.
India, in many ways, is uniquely positioned in this flux. It is the only economy with the potential to offer an alternative to China in manufacturing, the scale to be a vast consumer democracy, and the digital infrastructure to be a laboratory for the future. However, potential is not performance. As Michael Porter’s framework reminds us, real competitive advantage is engineered: it is built on factor conditions like skills and infrastructure, on sophisticated demand that pressures firms to upgrade, on clusters that integrate suppliers and innovators, and on institutions that enable healthy rivalry.
Yet even as India wrestles with the fundamentals of competitiveness: skills, clusters, demand, institutions etc., an even larger question presses is how will all this play out under the conditions of the climate transition? Competitiveness today cannot be disentangled from decarbonisation. The global economy is no longer agnostic to carbon; trade regimes, investment flows, and consumer preferences are increasingly climate conditioned. Europe’s Carbon Border Adjustment Mechanism, the explosion of green subsidies in the United States, and the race for critical minerals all illustrate how climate imperatives are being integrated into the very architecture of competition. For India, therefore, the climate transition is not an external constraint layered onto its growth story. It is part of the playing field on which competitiveness itself will be decided. The challenge of building clusters is also the challenge of building clean-energy ecosystems that can deliver reliable power without locking in existing infrastructure. The push for sophisticated domestic demand is also about whether rising households can afford and demand efficient appliances, electric vehicles, and renewable rooftop systems. The search for advanced factors is equally the search for climate-ready/green skills: engineers for green hydrogen, technicians for battery storage, regulators for carbon markets. Even India’s diplomatic posture, so crucial for securing capital and technology, is now shaped by climate alliances and green finance norms.
Seen through this lens, the climate transition is not a parallel agenda to competitiveness but a deep current running through it. It will determine whether India’s manufacturing revival can plug into future value chains or be left behind in carbon-intensive industries; whether its cities can become magnets for investment or choke under heat and pollution; whether its fiscal balance can be stabilised by green finance or strained by fossil lock-ins. In short, climate is not one more item on the reform checklist; it is the terrain on which India’s competitiveness will be enacted.
This is not only because trade and technology are becoming climate-conditioned, but also because climate change itself has profound economic and productivity implications. It is no longer just an environmental concern; it is a structural economic risk that strikes at the core of growth, welfare, and competitiveness. Research across the world shows two significant ways through which climate change undermines economic performance: the slow-moving but persistent effects of rising temperatures and shifting rainfall, and the recurrent shocks of extreme events like floods, cyclones, and heatwaves. Both erode productivity by reducing agricultural yields, lowering labour output, damaging infrastructure, and straining health systems. For India, these risks are magnified by structural vulnerabilities. With 43% of the workforce still employed in agriculture and much of industry reliant on outdoor labour, productivity losses from heat and rainfall variability are already significant. The ILO estimates South Asia could lose over 5% of working hours by 2030 due to heat stress alone which is the equivalent of millions of jobs disappearing in India’s most labour-intensive sectors[9]. Extreme events are also intensifying cyclones on the eastern coast, recurrent flooding in the Gangetic plains, and water scarcity in central India all disrupt output, damage infrastructure, and impose large fiscal costs for relief and reconstruction. States and districts differ sharply in their exposure. Bihar and Odisha, for example, experience repeated flood and cyclone shocks, while Rajasthan and Maharashtra face heat and drought. This uneven vulnerability means the productivity drag is not uniform but deeply regional, compounding India’s already stark disparities in growth.
The implication is clear: without climate resilience, competitiveness cannot be sustained. Productivity losses from rising temperatures and recurrent shocks risk wiping out the very gains India seeks from manufacturing expansion, labour participation, and infrastructure investment. In effect, the path to competitiveness must also be a path to climate adaptation and mitigation: protecting workers from heat stress, building resilient infrastructure, investing in early warning systems, and embedding climate risk into fiscal and industrial planning. Hence, if unmanaged climate risks erode productivity and deepen vulnerability, a well-designed climate transition becomes a powerful enabler of India’s competitiveness. By accelerating renewable energy and storage, India can lower input costs and enhance energy security; by investing in green industries like batteries, hydrogen, and circular economy models, it can capture new export markets; and by embedding resilience in agriculture, cities, and infrastructure, it can safeguard productivity and reduce fiscal shocks. In this sense, the climate transition is not only about meeting emission targets but it is a pathway to creating the advanced factor conditions, resilient clusters, and policy coherence that Porter identified as the hallmarks of competitive economies.
At the same time, while the transition offers an enabling platform, its potential will only be realised if it is effectively channelled and synergised with India’s broader development goals of jobs, equity, fiscal stability, and inclusive growth. The following section turns to this question: how the climate transition, if strategically enacted, can function not as an impediment but as an enabler of India’s long-term competitiveness.
Harnessing the Climate Transition for Competitiveness
Competitiveness is not about being the cheapest but about creating the conditions where firms and regions can continually upgrade through skills, innovation, and efficient ecosystems. Looked at this way, the climate transition is not an external imposition but a lever for such upgrading. Moving to clean energy, for instance, is not just about emissions reduction; it is about reducing the volatility of imported fuel costs, improving reliability for industries, and stimulating domestic manufacturing in renewables and storage. Each of these effects builds advanced factor conditions such as reliable infrastructure, energy security, and skilled labour that underpin competitiveness far more deeply than temporary cost advantages.
Global markets now demand low-carbon, circular products, with mechanisms like the EU’s Carbon Border Adjustment making climate standards central to market access. For Indian exporters, this is about survival, but also an opportunity: pressure to cut carbon can drive upgrades in processes, supply chains, and product quality. Domestic demand is shifting the same way, from solar to clean mobility, aligning internal and external incentives. Climate action is therefore not separate from competitiveness, rather it is its foundation, building resilience, productivity, and innovation.
One of the clearest pathways is through the circular economy. India is at a juncture where material demand will triple by 2040, much of it in construction, mobility, and consumer goods. A linear “take, make, waste” model would lock in import dependence, resource volatility, and waste management crises. Circular models where materials are reused, products designed for durability, and waste treated as feedstock offer a competitive alternative. They reduce costs by cutting material and energy intensity, and they generate new markets for repair, refurbishment, and recycling. This is not only an environmental strategy but an industrial one. It strengthens factor conditions by building domestic secondary-materials supply, reduces exposure to geopolitical shocks in critical minerals, and creates employment-intensive clusters in recycling, reverse logistics, and remanufacturing. For firms, circular practices open access to export markets where recycled content and traceability are fast becoming non-negotiable. For consumers, they mean longer-lasting products and lower lifecycle costs. In short, circularity transforms ecological constraint into a platform for competitiveness.
Climate shocks already strain India’s public finances through disaster recovery, energy subsidies, and costly fossil imports, crowding out investment in skills and infrastructure. Transitioning to renewables can reverse this: solar and wind are now the cheapest power sources and scaling them while phasing down fossil subsidies would stabilise budgets, cut input costs, and free resources for research, skills, and logistics. Green bonds and blended finance can further mobilise private capital without burdening the state. For heavy industries, decarbonisation is essential to remain in global value chains, while climate-resilient infrastructure and early-warning systems act as productivity insurance by protecting workers, reducing downtime, and preserving the foundations of competitiveness.
The employment dimension brings the argument full circle. For a country where millions of young people enter the labour market each year, the climate transition can be a generator of jobs if channelled correctly. Clean energy, repair and refurbishment industries, recycling, and sustainable agriculture are all more labour-intensive than the extractive, linear models they replace. Integrating India’s vast informal workforce into these emerging clusters can create dignified, productive work while upgrading skills across the board. Recognition of prior learning, micro-certification, and easier credit access can bridge informal workers into formal circular and clean-tech economies. In This not only expands the pool of skilled factors but embeds competitiveness in inclusion, ensuring that growth is broad-based and socially sustainable.
The international dimension amplifies these effects. In a world where trade, investment, and technology flows are increasingly conditioned by climate, India’s diplomatic posture can shape the external environment in ways that reinforce domestic competitiveness. By championing initiatives like the International Solar Alliance, the Coalition for Disaster Resilient Infrastructure, and the LiFE agenda, India projects its developmental pathway onto the global stage. This is not mere soft power; it is economic strategy. By shaping norms around finance, technology, and lifestyle, India secures policy space at home while opening opportunities abroad. Climate diplomacy thus becomes a competitiveness tool: it secures access to technology and markets, buffers against restrictive standards, and positions India as a shaper of the low-carbon order.
None of this will happen automatically. The risk is that the climate transition remains fragmented pilot projects that never scale, industrial policies that create rents rather than rivalry, and state-level disparities that widen rather than narrow. Competitiveness requires coherence. It requires aligning industrial policy with trade strategy, fiscal instruments with innovation incentives, and climate goals with development goals. It requires institutionalising predictability, so investors can trust that today’s standards and tariffs will not be arbitrarily altered tomorrow. Above all, it requires treating climate not as an add-on to the growth story but as the organising logic of competitiveness itself.
When framed this way, the climate transition ceases to be a trade-off. It becomes the method by which India can reconcile growth, resilience, and global integration. Circular models turn waste into resources and costs into competitiveness. Renewable energy lowers input costs and stabilises fiscal space. Climate resilience protects productivity against shocks. Green jobs and inclusive skills anchor prosperity in social stability. Diplomacy converts India’s domestic pathway into global influence. Each of these elements strengthens the competitiveness fundamentals like better factors, tougher demand, denser clusters, and sharper rivalry. Together, they can transform India’s favourable positioning into sustained competitive advantage.
The climate transition, then, is not merely compatible with competitiveness; it is indispensable to it. However, its enabling potential will only be realised if it is channelled with purpose and coherence, synergised with broader development goals, and embedded into the fabric of industrial, fiscal, and social policy. Done right, it can make India not just a large economy, but a competitive one productive, resilient, and prosperous on its own terms.
References:
Adil, L., Eckstein, D., Künzel, V., & Schäfer, L. (2025, February 12). Climate Risk Index 2025: Who suffers most from extreme weather events? Germanwatch e.V. https://www.germanwatch.org/sites/default/files/2025-02/Climate%20Risk%20Index%202025.pdf
Arruda, L. R., Lima, D. A., & de Barros, R. T. (2021). Circular economy: A brief literature review (2015–2020). Cleaner and Responsible Consumption, 3,100016. https://doi.org/10.1016/j.clrc.2021.100016
Asian Development Bank. (2022, November 3). Ensuring just transition is key to India’s energy transition goals. Asian Development Bank. https://www.adb.org/news/features/ensuring-just-transition-key-india-energy-transition-goals
Bruegel. (n.d.). The circular single market and sustainable competitiveness. https://www.bruegel.org/first-glance/circular-single-market-sustainable-competitiveness
Institute for Competitiveness. (2025). Skills for the future: Transforming India’s workforce landscape. Institute for Competitiveness. https://www.competitiveness.in/wp-content/uploads/2025/06/Report_Skill_Roadmap_Final_Compressed.pdf
Institute for Competitiveness; Economic Advisory Council to the Prime Minister (EAC-PM); Porter, M. E.; & Ketels, C. H. M. (2022, August). Competitiveness Roadmap for India@100 [Report]. Institute for Competitiveness. https://www.competitiveness.in/wp-content/uploads/2022/08/Report_Competitiveness_Roadmap-25_August_2022_Web_Version.pdf
Institute for Sustainable Development and International Relations (IDDRI). (2023). Aligning decarbonization, circularity and competitiveness: Europe’s role. https://www.iddri.org/en/publications-and-events/blog-post/aligning-decarbonization-circularity-and-competitiveness-europes
Kant, A., & Kapoor, A. (2023). The elephant moves: India’s new place in the world. Penguin Business.
NITI Aayog. (2025). India voluntary national review 2025: Progress towards the Sustainable Development Goals. Government of India. https://niti.gov.in/sites/default/files/2025-08/india-voluntary-national-review.pdf
Porter, M. E. (2008). On competition (Updated and expanded ed.). Harvard Business School Publishing.
Tamellini, L. (2025, February 25). A clean industrial revolution in Europe. Carbon Market Watch. https://carbonmarketwatch.org/publications/a-clean-industrial-revolution-in-europe/
[1] Porter, M. E. (1990). The competitive advantage of nations. Harvard Business Review, 68(2), 73–93.
[2] World Bank Group. (2024). People in a changing climate: From vulnerability to action – Insights from World Bank Group country climate and development reports covering 72 economies. World Bank. https://hdl.handle.net/10986/42395
[3] International Labour Organization. (2020). Working on a warmer planet: The impact of heat stress on labour productivity and decent work. ILO. https://www.ilo.org/wcmsp5/groups/public/—/—/wcms_711919.pdf
[4] World Bank Group. (2022). Climate and development: An agenda for action – Emerging insights from World Bank Group 2021–22 country climate and development reports. World Bank Group. https://hdl.handle.net/10986/38220
[5] World Bank- https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=IN
[6] World Development Indicators- World Bank: https://data.worldbank.org/indicator/SL.GDP.PCAP.EM.KD
[7] World Bank- https://databank.worldbank.org/reports.aspx?source=2&series=NY.GDP.PCAP.PP.KD&country=
[8] World Development Indicators- World Bank: https://data.worldbank.org/indicator/SL.EMP.TOTL.SP.ZS
[9] International Labour Organization. (2020). Working on a warmer planet: The impact of heat stress on labour productivity and decent work. ILO. https://www.ilo.org/wcmsp5/groups/public/—/—/wcms_711919.pdf
