Productivity, not just growth, for Viksit Bharat

UPSC Syllabus: Gs Paper 3- Indian economy

Introduction

India has maintained strong economic growth with macroeconomic stability in the post-pandemic period. Real GDP growth reached 6.5% in FY2024-25, supported by domestic demand, controlled inflation, fiscal consolidation, and a stable financial sector. However, according to the KPMG report on India’s next growth phase, achieving Viksit Bharat @2047 requires a transition from growth in scale to growth in productivity. This shift needs stronger manufacturing, efficient resource allocation, skilled human capital, technology adoption, and deeper structural reforms.

Manufacturing as the Engine of Structural Transformation

1. Manufacturing and long-term growth: Manufacturing is necessary for large-scale employment generation and productivity growth. It acts as a bridge between low-productivity agriculture and high-productivity modern sectors.
2. Limits of service-led growth: India’s growth has been driven mainly by services, while manufacturing has not expanded enough to absorb labour or create broad-based productivity gains. This creates a structurally weak growth pattern.
3. Weak manufacturing structure: India’s manufacturing sector has many small and low-productivity firms, but very few medium-sized firms capable of scaling. This reduces export competitiveness and productivity growth.
4. Need for manufacturing depth: Manufacturing remains around 17% of GDP despite growth in electronics and engineering exports. India needs deeper production ecosystems, stronger domestic value addition, and better integration with global value chains.
5. Labour and efficiency gaps: A large share of labour still remains in agriculture where productivity is much lower than manufacturing and services. Efficiency gaps continue despite large investments in infrastructure.

Productivity Challenges and Weak Business Dynamism

1. Slow creative destruction: Productivity growth depends on efficient firms replacing inefficient firms. This process remains slow in India.
2. Impact of zombie firms: Many low-productivity “zombie firms” continue operating despite poor financial performance. These firms tie up labour and capital in inefficient activities.
3. Debt concentration in weak firms: Zombie firms account for a disproportionately large share of total debt and assets. This creates systemic inefficiencies and reduces productive use of capital.
4. Financing pattern and firm recovery: Bank-financed firms are more likely to become zombies and remain in distress for longer periods. Equity-financed firms are less prone to zombification and recover more sustainably.
5. Institutional barriers to productivity: Financial and regulatory systems often sustain inefficient firms instead of enabling exit. This weakens efficient reallocation of resources.
6. Impact on productive firms: Weak firms crowd out credit from productive firms. This reduces overall productivity growth and business dynamism.

MSME Competitiveness, Human Capital, and Technology Upgradation

1. Importance of MSMEs: MSMEs employ more than 110 million people and are critical for manufacturing growth. However, many MSMEs face low productivity and weak competitiveness.
2. Need for MSME productivity reforms: Productivity improvement requires cash-flow-based lending using GST and digital data. Cluster-based upgrading and export enablement are also important.
3. Transition towards competitive enterprises: Small firms need support to become competitive mid-sized enterprises. This is necessary for stronger manufacturing growth.
4. Industry 4.0 adoption: Greater use of Industry 4.0 technologies among MSMEs is important for improving productivity and manufacturing depth.
5. India’s demographic advantage: India’s median age is 28 years, and the working-age population is expected to exceed 1.13 billion by 2050. This creates a major opportunity for growth.
6. Linking education with employment: India needs closer integration between education, skilling, and employment. This is necessary for building a future-ready workforce.
7. Role of the National Education Policy: The National Education Policy must be operationalised effectively. Apprenticeship-linked degrees should also be expanded.
8. Re-skilling for emerging sectors: Re-skilling is needed in AI-enabled services, advanced manufacturing, and digital technologies. The focus should shift from enrolment to employability.

Infrastructure, Governance, and Institutional Reforms

1. Shift from asset creation to efficiency: India has largely completed its infrastructure foundation phase through public investment and digital platforms. The next phase requires converting these investments into productivity gains.
2. Infrastructure Phase II priorities: Focus areas include multimodal logistics corridors, plug-and-play industrial cities, digital logistics stacks, and reliable energy-water-digital infrastructure. These are important for sectors like semiconductors, green hydrogen, defence manufacturing, and AI-driven infrastructure.
3. Urban and trade reforms: Cities must function as productive economic regions through transit-led planning and stronger municipal finance. Trade diversification and stronger domestic value addition are also necessary for external resilience.
4. Regulatory and financial reforms: Productivity growth requires simpler regulations, easier labour systems, stronger insolvency mechanisms, better credit allocation, and expanded access to financing. These reforms can improve business dynamism and firm scaling.
5. Importance of implementation and execution: Sustained growth depends on timely project completion, stronger institutional delivery, digital transparency, and better feedback systems for policy correction. Innovation must move effectively from research to production.

Conclusion

India has created a strong foundation through economic growth, infrastructure expansion, and macroeconomic stability. Achieving Viksit Bharat @2047 now depends on productivity-led development supported by manufacturing depth, competitive firms, skilled human capital, technology adoption, and institutional reforms. Efficient implementation, better resource allocation, and sustained competitiveness will determine whether India can convert rapid growth into long-term economic strength.

Question for practice:

Examine why India must shift from growth at scale to productivity-led development to achieve the vision of Viksit Bharat @2047.

Source: The Hindu