Why One-Size Fits All Economic Policy Fails India’s Uneven Growth Reality 

India’s economic policy still behaves as if the country were a single, uniform marketplace. It is not. A one-size-fits-all policy may make life easier for tax officers, but when it comes to capital and credit, it ends up choking large parts of the country. If India is serious about inclusive development, it must abandon the pretence that identical rules can deliver equal opportunity.

The gap between India’s states is no longer a matter of degree; it has become a matter of structure. Karnataka, Tamil Nadu, Maharashtra and Gujarat now earn three to five times more per person than Bihar, Uttar Pradesh, Jharkhand or Jammu & Kashmir. Even Punjab and parts of the North-East are twice as well off as the poorest states. Within states, the divide between metros and districts is starker still. Yet our growth policies continue to assume a level field.

This mismatch matters most where it hurts most: in weaker states that desperately need risk capital to spark enterprise, jobs and innovation. Tax policy may travel well across geographies, but capital does not. It follows ecosystems, networks, confidence and regulatory headroom. 

Take the case of Bihar. Years of weak industry and low urbanisation have pushed even educated young people to leave for Delhi, Bengaluru, Mumbai, Pune or Hyderabad. Along with farm and semi-skilled workers, they now form a vast diaspora that sends money back home. That money keeps families going, but it seldom turns into investment, into venture funds, risk capital or enterprises that could take root in the state.

This is not because the diaspora lacks capital or intent. Since the early 1990s, a generation of Biharis has prospered in professional careers and business across India’s metros. Many invest actively in start-ups, mutual funds, equities and property. Yet almost none invest in Bihar. Even upgrading ancestral property is rare—something I have seen first-hand in the Mithila region. And with virtually no publicly listed companies from the state, there is no natural channel for diaspora savings to flow home.

The result is a vicious circle: weak ecosystems repel capital, and the absence of capital keeps ecosystems weak.

Nowhere is this more evident than in the world of early-stage risk funding. Look at SEBI’s Category-I Alternative Investment Funds, meant to channel capital into start-ups and innovation. You will find almost no funds with a presence, focus or meaningful investment in Bihar or similar states. It is not a coincidence. It is the predictable outcome of rules designed for already-prosperous regions.

Under current regulations, an “angel investor” must have net tangible assets of at least ₹20 million (excluding the primary residence), or be a corporate with a net worth of ₹100 million. Each investor must commit a minimum of ₹2.5 million, and an angel fund must raise at least ₹250 million over five years. These thresholds may be reasonable in Bengaluru or Gurugram. In Patna or Gaya, they are fantasy.

For most potential investors from the Bihar diaspora, these hurdles are simply insurmountable. Expecting individuals to lock in ₹2.5 million, or to meet a ₹20 million net-worth test, or to assemble a ₹250 million fund, ignores the economic reality of weaker states. The outcome is brutal in its simplicity: even willing investors cannot come together to form a SEBI-recognised angel fund for Bihar. And outside funds, quite rationally, see little reason to venture into an ecosystem starved of capital to begin with.

Policy Mismatch
This is why India needs to rethink its regulatory imagination. If growth conditions differ sharply across states, why should the instruments for growth be identical?

SEBI and the finance ministry should create a differentiated category of AIFs or angel funds aligned specifically to the needs of economically weaker states such as Bihar, Uttar Pradesh, Madhya Pradesh, Odisha, West Bengal and much of the North-East. Bring the bar down to where people actually stand, and things will begin to move. A ₹500,000 commitment over three years, ₹5 million net worth for individuals, ₹20 million for corporates and a ₹50 million fund is all it would take to let diaspora money and local savings finally find a home—to take early-stage risks on local enterprises that understand the region’s problems and possibilities.

Of course, safeguards would be essential. These funds could be restricted to investing only in specified regions. Allocation norms and enhanced disclosures could deter misuse. Strong oversight would matter. But regulation should be a guardrail, not a barricade. Today, the barricade is so high that poorer states are locked out of the start-up movement altogether.

India’s current framework implicitly favours places that already have capital, networks and high incomes. It rewards success with more opportunity, while offering the laggards little more than good wishes. That may be efficient in the short run, but it is corrosive for a country that claims to pursue balanced development.

As Bihar seeks to turn a new leaf, with leadership speaking the language of industrialisation and enterprise, the onus is also on national regulators to match ambition with instruments. Without new financial pathways, political intent will remain just that—intent.

There is a role here for leaders, too, from weaker states. They must lobby the Centre, not for more grants alone, but for smarter rules. Opening the floodgates for capital formation is among the surest ways to change an economy’s trajectory. 

If India wants every state to participate meaningfully in its growth story, it must accept a simple truth: different starting lines demand different rules.