Why India’s transport transition depends on replacing old systems, building domestic capability, and managing the disruption that comes with innovation
The 2025 Nobel Prize in Economics awarded to Philippe Aghion and Peter Howitt underscores a timeless principle of progress: economies grow not through preservation but through replacement. Their model, A Model of Growth through Creative Destruction showed mathematically that long-term growth occurs when innovation continuously displaces outdated technologies. In their framework, each new idea improves productivity but simultaneously makes existing methods obsolete. The rate of growth, therefore, depends on the frequency of innovations and the willingness of societies to accept the “destruction” that creative change entails.
For India’s transport sector, this theory is no longer an academic abstraction — it is a lived reality. The country’s mobility system, built on internal combustion engines and fossil fuels, has reached its structural limits. Transport contributes nearly 12 percent of India’s total energy-related CO₂ emissions and remains the fastest-growing energy-consuming sector. TERI’s report titled Roadmap for India’s Energy Transition in the Transport Sector projects that, under the baseline scenario (base year being 2019-20), greenhouse gas emissions from transport will increase fivefold by 2050, dominated by road vehicles. Yet, as the same report shows, under ambitious electrification and alternative fuel scenarios, emissions could stabilise and decline substantially through 2070 — underscoring that without a fundamental shift in technology mix, current growth patterns will lock the sector into an increasingly carbon-intensive future.
The Aghion–Howitt framework helps explain why India’s transport transformation must be deliberately disruptive rather than incremental. In their model, economies stagnate when innovation merely adds to existing systems — small improvements that extend the life of old technologies without fundamentally replacing them. True, sustained growth arises only when new technologies supersede the old, increasing both the frequency and the scale of innovation. In other words, progress accelerates when societies allow technological turnover instead of preserving legacy structures. This dynamic is visible in India’s electric mobility transition. The IEA’s Global EV Outlook 2025 projects that global stock of EVs is set to more than triple by 2030, even as total road transport energy demand grows by just 5 per cent — evidence that new electric drivetrains are not merely substituting engines but transforming efficiency itself.
In the Aghion–Howitt model, long-term growth accelerates when new technologies emerge frequently and replace older ones, and India’s transport sector is beginning to reflect this shift, with the India Electric Mobility Index 2024 showing strong innovation clusters in states like Tamil Nadu, Delhi, Gujarat, Haryana, Maharashtra and Karnataka. These developments indicate a more distributed EV innovation landscape, yet, as Ingrid Harvold Kvangraven notes in her EPW commentary1, innovation is shaped by global value chains that influence who ultimately captures the benefits. India still depends heavily on imported critical minerals, battery components and advanced manufacturing, creating the risk that creative destruction may occur domestically while much of the economic value flows abroad. Concentrated battery supply chains keep India exposed to external dependencies, making localisation a strategic priority. Strengthening domestic R&D, recycling systems and industrial capacity—supported by new battery joint ventures—will therefore be essential to retain these gains. Recent industrial initiatives, including the proposed USD 1.5 billion JSW–LG Energy partnership and state-level recycling initiatives, represent early steps toward internalising the economic benefits of India’s transport transition. The broader challenge, consistent with the Aghion–Howitt model, is balancing rapid technological turnover with stability, as uncoordinated or premature transitions can destroy value before new systems mature.
But India’s transport transition is not limited to electrification; it also includes natural gas (including compressed biogas), biofuels, hybrids—emerging as complementary or transitional options across different modes and time horizons. IEA’s India Gas Market Report (2024) projects that the target of CNG stations and CBG–CGD synchronisation by 2030 could add over 7 billion cubic meters of annual gas demand. These shifts function as Schumpeterian “intermediate technologies,” bridging the gap between carbon-intensive incumbents and fully renewable futures. Yet this evolution also reflects the duality highlighted by Aghion and Howitt: innovation generates broad social gains but can impose private losses, and markets often underinvest in transformative change while favouring incremental, business-stealing adjustments. Similar patterns appear in India’s transport landscape, where fragmented incentives, uneven charging standards and varied city regulations risk producing a patchwork of small innovations rather than systemic progress. Ensuring that this transition remains welfare-enhancing will require coherent national coordination that aligns technologies, institutions and investment pathways.
Economics explains why scale matters: unit costs fall with cumulative production (learning-by-doing) and with supply-chain depth, while social returns to early deployment (reduced pollution, avoided climate damages, learning spillovers) exceed private returns — so private markets will underinvest in transformative technologies without policy support. At the same time, transitional fuels (CNG/CBG, LNG, biofuels, hybrids) act as Schumpeterian “intermediate” technologies that lower abatement cost curves in the short run, ease transition risks for incumbent fleets, and create time for battery and ecosystems to mature.
Ultimately, an economy’s growth is a stochastic drift of continuous innovation — India must now operationalise through governance. The early stage of any new technology demands coordinated investment, standard-setting and market assurance; once maturity is achieved, competition and scale efficiencies should take over. India’s challenge lies in sequencing this support correctly—ensuring that emerging fuels are nurtured long enough to achieve viability, but not shielded indefinitely from competition. The transport sector embodies this drift: each new technology — be it an EV or LNG truck — increases productivity and reduces emissions, but only if policy enables diffusion and manages displacement. India’s transition must therefore view disruption as an instrument of resilience, not instability. As India targets net zero by 2070, the mathematics of creative destruction translates into a policy imperative: raise the innovation rate, expand the scale of each transformation, and smooth the social cost of obsolescence.
Reference:
1https://ingridhk.wordpress.com/wp-content/uploads/2025/11/epw_ingrid-harvold-kvangraven.pdf
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