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

India aims to become a Viksit Bharat by achieving high and sustainable economic growth. However, merely increasing GDP growth is not sufficient.

The focus must shift from only “growth” to improving “productivity,” because long-term economic progress depends on how efficiently resources such as labour, capital, technology, and institutions are utilized.

India recorded a real GDP growth rate of around 6.5% in 2024–25, making it one of the fastest-growing major economies. This growth was supported by:

• Strong domestic demand
• Controlled inflation
• Fiscal consolidation
• Stable financial sector and reduced NPAs

Despite this, concerns remain regarding low productivity, weak manufacturing, and insufficient employment generation.

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Why Productivity Matters More Than Growth?

Economic growth without productivity improvement is unsustainable.

For example, if a student increases study hours from 3 to 6 hours but effective learning remains only 1 productive hour, the growth in effort does not translate into better outcomes.

 Similarly, an economy may grow rapidly, but if efficiency and productivity remain low, long-term development becomes difficult.

Higher productivity leads to:

• Better wages
• Competitive industries
• Innovation and R&D
• Sustainable long-term growth
• Higher employment generation

Thus, productivity enhancement is essential for achieving developed-country status.

The “Missing Bridge” in Structural Transformation

According to the Kaldor Principle, a nation’s progress depends heavily on its manufacturing sector. Most successful economies (UK, US, China, South Korea) followed a path from agriculture to manufacturing and finally to services.

• India’s Skewed Path: India effectively skipped the manufacturing “bridge,” jumping directly from agriculture to the service sector.
• Consequence: While the service sector creates significant wealth and GDP, it requires high skills and cannot generate “mass employment” for the millions moving out of agriculture. This leaves rural India and farmers behind because the labor-intensive manufacturing sector remains weak.

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The Crisis of Mid-Size Firms

India’s industrial structure is “hollow” in the middle. Unlike East Asian nations like Taiwan and South Korea, which have a high density of mid-sized firms that export globally, India mostly has either very small (micro) firms or very large corporations.

• The “Small” Trap: Small firms in India are afraid to grow because they want to avoid labor laws and compliance burdens that apply to larger entities.
• Failure to Innovate: These small firms often “die small” because they lack the scale to invest in R&D and modern technology, leading to low productivity.

The “Zombie Firm” Threat

A major hurdle to productivity is the existence of “Zombie Firms”—inefficient, unproductive, and uncreative companies that should have failed but are kept alive.

• Creative Destruction: In a healthy economy, the concept of “Creative Destruction” suggests that unproductive firms should die so their resources (labor and capital) can move to innovative new firms.
• Bank Failures: In India, banks often continue to provide loans to these failing “zombies” to keep their own balance sheets appearing “clean” and avoid marking loans as NPAs.
• Economic Cost: These zombies consume resources (credit and labor) that should rightfully go to new-age startups and R&D-focused companies, thereby dragging down the nation’s overall productivity.

The Master Plan: Four Priority Interventions

To fix these structural issues, the source suggests a four-point strategy:

• Global Integration: India must integrate into global supply chains, moving beyond just assembly (like current iPhone production) to becoming a key node in global manufacturing.
• Ease of Exit: Strengthen the Insolvency and Bankruptcy Code (IBC) to allow unproductive “zombie” firms to exit the market quickly so their assets can be repurposed.
• Labor and Land Reforms: Implement reforms to make land more accessible and labor laws less punitive for growing companies, encouraging small firms to reach mid-size and large scales.
• Credit Reallocation: Ensure that the banking system prioritizes lending to new, productive, and innovative firms rather than wasting capital on “zombie” companies.

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Conclusion

India’s current economic success provides a strong foundation, but it is not a guarantee of future prosperity. The transition to “Viksit Bharat” requires more than just high GDP numbers; it requires a structural repair of the economy. By building the “missing bridge” of manufacturing, eliminating unproductive “zombie” firms, and fostering a landscape where small firms can fearlessly scale up, India can ensure that its growth is both productive and inclusive for its entire population.

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