Productivity and Viksit Bharat – India’s Growth, Manufacturing Challenges & Economic Reforms

Growth Alone Is Not Enough

India’s ambition to become a Viksit Bharat rests not just on high GDP numbers but on the quality of growth. With real GDP expanding at 6.5% in 2024–25, supported by strong domestic demand, fiscal consolidation, and a stable financial sector, the foundations appear solid. Yet, beneath the surface lies a persistent weakness: low productivity, fragile manufacturing, and insufficient job creation.

Why Productivity Matters

Economic growth without productivity is like effort without results. Just as doubling study hours without effective learning yields little progress, GDP growth without efficiency cannot sustain prosperity. Higher productivity ensures:

• Better wages and living standards

• Competitive industries and innovation

• Sustainable long-term growth

• Greater employment generation

For India, productivity is the true measure of progress toward developed-country status.

The Missing Manufacturing Bridge

The Kaldor Principle highlights manufacturing as the critical bridge between agriculture and services. Successful economies—China, South Korea, the U.S.—followed this path. India, however, skipped manufacturing, leaping directly from agriculture to services. While services generate wealth, they demand high skills and cannot absorb millions leaving farms. This structural imbalance leaves rural India behind.

The Hollow Middle of Industry

India’s industrial landscape suffers from a “missing middle.” Unlike East Asia, which nurtured mid-sized firms capable of global exports, India is dominated by micro enterprises and large corporations.

• Small Firms’ Trap: Fear of compliance and labour laws discourages growth.

• Lack of Innovation: Small firms rarely scale up, limiting investment in R&D. This hollow structure undermines productivity and competitiveness.

The Burden of Zombie Firms

Another drag on productivity is the persistence of “zombie firms”—unproductive companies kept alive by banks reluctant to recognize bad loans. Instead of allowing creative destruction, resources remain locked in failing enterprises. This misallocation prevents capital and labour from flowing to innovative startups and productive industries.

The Master Plan – Four Interventions

To repair structural weaknesses, India must act decisively:

• Global Integration – Move beyond assembly to become a key node in global supply chains.
• Ease of Exit – Strengthen the Insolvency and Bankruptcy Code to allow failing firms to exit quickly.
• Labour and Land Reforms – Simplify laws to encourage small firms to scale up.
• Credit Reallocation – Redirect banking capital toward innovative, productive enterprises.

Conclusion

India’s current growth trajectory is promising but fragile. To achieve Viksit Bharat, the nation must shift from headline GDP numbers to structural productivity reforms. Building a robust manufacturing base, eliminating zombie firms, and empowering small enterprises to scale will ensure inclusive, sustainable prosperity. Only then can India’s growth translate into genuine development for all its citizens.