Productivity, not just growth, for Viksit Bharat
India must unlock productivity to sustain long-term economic growth
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Context
This editorial argues that India's goal of becoming a developed nation () by 2047 requires a significant increase in productivity, particularly within the manufacturing sector. The author highlights the structural problem of 'zombie firms'—inefficient businesses that survive on debt rather than economic viability—which prevent the efficient allocation of resources and hinder the growth of a robust, medium-to-large scale manufacturing base. Addressing this requires regulatory reforms to facilitate both business growth and the exit of unviable enterprises.
UPSC Perspectives
Economic
The central economic concept here is structural transformation—the movement of labour and capital from low-productivity sectors like agriculture to higher-productivity sectors like manufacturing and services. The editorial notes that India's growth has been 'skewed,' heavily reliant on services, while manufacturing has failed to generate sufficient employment or productivity gains. A critical impediment is the phenomenon of zombie firms, which are businesses that generate just enough cash to service their debt but cannot pay off the principal or invest in growth. These firms create a drag on the economy by locking up capital and labour that could be used more efficiently elsewhere, preventing creative destruction (the process where new, efficient firms replace older, inefficient ones). The author cites research showing that these firms disproportionately consume debt, particularly bank financing, leading to systemic inefficiencies and crowding out credit from more productive enterprises. For UPSC Mains, candidates should analyze the structural bottlenecks in India's manufacturing sector and the impact of non-performing assets (NPAs) or stressed assets on overall economic productivity.
Governance
The persistence of zombie firms is fundamentally a governance and regulatory issue. The editorial implies that India's current institutional framework—including financial regulations and insolvency procedures—often sustains inefficient firms rather than facilitating their orderly exit. To resolve this, the author advocates for reforms such as simplifying regulations, easing labour constraints, and strengthening the (IBC) to ensure quicker resolution of distressed assets. Furthermore, improving credit allocation mechanisms is crucial. The reliance on bank financing, which the research suggests is more prone to 'zombification' than equity financing, highlights the need for deeper and more robust capital markets in India. A two-pronged strategy is proposed: enabling efficient firms to scale up while simultaneously allowing unviable firms to exit the market. From a governance perspective, this requires a delicate balance between protecting employment (often cited as a reason for keeping inefficient firms alive) and fostering long-term economic dynamism.
Industrial Policy
The article references the , reinforcing the government's recognition that manufacturing must be the anchor for the next phase of India's growth. The current firm structure in India's manufacturing sector—dominated by many small, low-productivity firms and lacking a strong 'missing middle' of medium-sized enterprises—contrasts sharply with the successful industrialization models of East Asian economies. Expanding manufacturing scale and efficiency requires deeper integration into global value chains (GVCs), managing trade barriers, and continued investment in infrastructure and research & development (R&D). The vision of hinges on transitioning from merely achieving high GDP growth to ensuring sustained increases in per capita income and overall productivity. This necessitates industrial policies that incentivize technological upgradation, support MSMEs in scaling up, and create an enabling environment for private sector investment, rather than just relying on government expenditure.