Productivity, not just growth, for Viksit Bharat, Pg6

Key Highlights:

• India's real GDP growth reached 6.5% in FY2024-25, marking it as one of the fastest-growing major economies, driven by strong domestic demand and macroeconomic stability.
• Achieving Viksit Bharat by 2047 requires accelerating productivity growth through structural reforms in labor, capital, and overall efficiency.
• The Economic Survey 2025-26 emphasizes that manufacturing must be central to sustaining growth and generating employment at scale.
• India's manufacturing sector is characterized by numerous small, low-productivity firms, contrasting with East Asia's successful industrialization model.
• Zombie firms in India account for a disproportionately large share of total debt and assets, locking capital into low-productivity uses.
• A two-pronged strategy focusing on scaling up manufacturing and enhancing efficiency is crucial for India's path to Viksit Bharat.

Detailed Insights:

• India's structural transformation is skewed, with services driving growth while manufacturing lags in absorbing labor and generating productivity gains.
• The persistence of small, low-productivity "zombie" firms impedes the efficient reallocation of resources, hindering overall productivity growth.
• Bank-financed firms are more prone to becoming zombies, remaining in distress longer, while equity-financed firms show better recovery.
• Financial and regulatory structures often sustain inefficient firms, weakening reallocation by crowding out credit from more productive firms.
• India needs deeper integration into global value chains, managed trade barriers, and continued infrastructure investment to expand manufacturing.
• Improving productivity requires stronger business dynamism, productive research and development, and reforms to simplify regulations.
• Enabling firms to grow and allowing inefficient firms to exit through strengthened insolvency processes is vital for achieving Viksit Bharat.

Key Concepts Involved:

• Viksit Bharat: India's vision to become a developed nation by 2047, requiring high and sustainable economic growth.
• Zombie Firms: Economically unviable firms that continue to operate, tying up capital and labor, hindering efficient resource allocation.
• Structural Reforms: Policy changes aimed at improving the efficiency and productivity of an economy's structure, including labor and capital markets.