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India’s caller economical show has been beardown capable to animate confidence. Over the past decade, and peculiarly successful the post-COVID-19 pandemic period, India has combined comparatively precocious maturation with macroeconomic stableness successful a mode that fewer ample economies person managed. Real GDP maturation has remained robust, reaching 6.5% successful FY2024-25, making India 1 of the fastest-growing large economies globally. This show has been underpinned by beardown home demand, subdued inflation, gradual fiscal consolidation, and a broadly unchangeable fiscal sector.
While India’s productivity maturation has been meaningful implicit caller decades, sustaining precocious maturation volition necessitate acceleration, peculiarly arsenic India aspires to go Viksit Bharat by 2047. That modulation volition necessitate not conscionable maintaining macroeconomic stableness but besides activating each engines of growth, labour, capital, and improved productivity, done deeper structural reforms.
Manufacturing without depth
There is present increasing recognition, reflected successful the Economic Survey 2025-26, that manufacturing indispensable anchor this adjacent phase. The challenge, however, is not conscionable expanding manufacturing, but besides making it much productive. India’s structural translation has been skewed. While services person driven growth, manufacturing has not expanded sufficiently to sorb labour oregon make broad-based productivity gains. In astir palmy improvement experiences, manufacturing acts arsenic the span betwixt low-productivity agriculture and high-productivity modern sectors.
The Economic Survey reinforces this point, emphasising that manufacturing is cardinal to sustaining maturation and generating employment astatine scale. Without it, India risks a maturation signifier that is neither sufficiently robust nor structurally stable. While productivity maturation successful services has been strong, manufacturing productivity has lagged down some its imaginable and that of its planetary peers. A cardinal contented is steadfast structure. India’s manufacturing assemblage is characterised by a ample fig of small, low-productivity firms and comparatively fewer mid-sized firms susceptible of scaling up. This is successful stark opposition to economies that successfully industrialised, peculiarly successful East Asia, which saw the emergence of a beardown cohort of mean and ample firms that drove exports and productivity growth.
Therefore, the existent operation creates a situation for businesslike origin allocation, starring to a important stock of labour remaining successful agriculture, wherever productivity is acold little than successful manufacturing and services. Most importantly, contempt important concern — peculiarly successful infrastructure — ratio gaps remain.
Zombie firms, stalled reallocation
These structural constraints converge into a deeper problem, reflected successful a anemic concern dynamism. In economical theory, productivity maturation is often driven by originative destruction, successful which new, much businesslike firms regenerate older, little productive ones. In practice, this process remains dilatory successful India. As a result, the persistence of small, low-productivity “zombie” firms impedes the businesslike reallocation of resources. Zombie firms that are nary longer economically viable but proceed to run nevertheless necktie up superior and labour that could different beryllium deployed successful much productive uses.
Evidence from caller studies further reinforces this concern. A paper, “Zombie Firms successful Emerging Markets: Survival and Funding Mechanisms” (2025), shows that portion zombie firms represent a comparatively tiny stock of firms, they relationship for a disproportionately ample stock of full indebtedness and assets. This implies that a important measurement of superior is locked into low-productivity uses, creating systemic inefficiencies. The probe besides shows that zombification is simply a gradual process. Financial deterioration begins good earlier firms are classified arsenic zombies, and erstwhile they participate this state, they go progressively babelike connected indebtedness portion showing small betterment successful halfway show indicators. The occupation is persistent, not cyclical. Crucially, the quality of financing matters. Bank-financed firms are much apt to go zombies, stay successful distress for longer periods, and relapse adjacent aft partial recovery. In contrast, equity-financed firms are little prone to zombification and much apt to retrieve sustainably.
These findings constituent to a deeper organization issue. Financial and regulatory structures often prolong inefficient firms alternatively than facilitating exit. This weakens reallocation by crowding retired recognition from much productive firms, thereby undermining wide productivity growth.
Two-pronged strategy
India’s way to Viksit Bharat requires a manufacturing-led strategy that addresses some standard and efficiency. India has demonstrated that it tin turn rapidly. The adjacent signifier is astir ensuring that this maturation translates into sustained increases successful productivity and income. There is increasing designation that manufacturing is the anemic nexus successful India’s improvement communicative and that expanding manufacturing volition necessitate deeper integration into planetary worth chains, managing commercialized barriers, and continued infrastructure investment. Equally important is improving productivity done stronger concern dynamism and productive probe and development. This means enabling firms to grow, but besides allowing inefficient firms to exit. Reforms indispensable truthful absorption connected simplifying regulations, easing labour constraints, strengthening insolvency processes, improving recognition allocation, and expanding entree to financing.
The imaginativeness of Viksit Bharat yet depends connected whether India tin implicit this transition. Growth has laid the foundation, but enhanced productivity and the exit of inefficient firms volition find whether it tin prolong the leap to Viksit Bharat.
Saumitra Bhaduri is Professor astatine the Madras School of Economics
