📈 Productivity, not just growth, for Viksit Bharat
Author: Saumitra Bhaduri, Madras School of Economics | India's growth story needs a productivity upgrade
⚡ Core Argument
India has achieved robust GDP growth (6.5% in FY2024-25) with macroeconomic stability. But this growth is not productively deep enough. Zombie firms, poor factor allocation, skewed structural transformation, and inadequate manufacturing productivity threaten to make India's growth pattern "neither sufficiently robust nor structurally stable." Viksit Bharat demands a manufacturing-led, productivity-driven two-pronged strategy.
⚖️ Growth vs Productivity — Key Distinction
| 📊 Growth (What India has) | 🎯 Productivity (What India needs) |
|---|---|
| High GDP growth rate (6.5%+) | Efficient use of capital, labour & land |
| Services-driven expansion | Manufacturing absorbing low-skill labour |
| Labour stuck in low-productivity agriculture | Labour moving to high-productivity sectors |
| Small zombie firms surviving on bank credit | Inefficient firms exiting; resources freed |
| Strong domestic demand | Export-competitive, GVC-integrated firms |
🔍 Structural Problems — Why Growth Is Not Enough
- Skewed structural transformation: Services drove growth but manufacturing did not expand enough to absorb labour or generate broad-based productivity gains
- Large number of small, low-productivity firms: In contrast to East Asia where medium & large firms drove exports
- Labour stuck in agriculture: Productivity far lower than manufacturing & services — persistent misallocation
- Infrastructure gaps: Despite significant investment, efficiency gaps remain — drag on productivity
🧟 Zombie Firms — The Hidden Drag
- Firms that are no longer economically viable but continue to operate — sustained by bank credit
- Account for a disproportionately large share of total debt and assets despite being a small share of firms
- Lock up capital + labour that could be deployed in more productive uses
- Zombification is gradual: Financial deterioration begins before firms are classified as zombies → then become increasingly debt-dependent with little recovery in core performance
- Bank-financed vs equity-financed: Bank-financed zombie firms remain in distress longer; equity-financed firms more likely to recover sustainably
- Financial and regulatory structures that sustain inefficient firms crowd out credit from productive firms — weakens overall productivity growth
🎯 Two-Pronged Strategy for Viksit Bharat
Scale + Efficiency
Trade barriers + Infrastructure
- GDP Growth FY2024-25: 6.5% real GDP growth — one of fastest among major economies
- Viksit Bharat 2047: India's vision to become a developed nation by 100th Independence Day
- Zombie Firms: Economically non-viable firms continuing to operate; major drag on capital allocation
- Creative Destruction: Schumpeterian concept — new efficient firms replace old inefficient ones; drives productivity
- Economic Survey 2025-26: Emphasises manufacturing as anchor for next growth phase
- IBC (Insolvency and Bankruptcy Code): Key tool for zombie firm resolution; enables efficient exit
- GVC (Global Value Chains): Integrating into international production networks — key for export competitiveness
- Factor Allocation: Distribution of land, labour, capital to most productive uses — core issue here
🔑 Key Terms
✏ Probable Mains Questions
- "India's economic growth is robust but lacks the productivity depth required for Viksit Bharat 2047." Critically examine. (GS-3, 250 words)
- What are 'zombie firms'? How do they impede productivity growth in India? Suggest policy measures to address this. (GS-3, 150 words)
🎯 Practice MCQs
With reference to 'Zombie Firms' in an emerging economy context, consider the following statements:
1. Zombie firms account for a disproportionately large share of total debt and assets relative to their numbers.
2. Bank-financed zombie firms tend to recover more sustainably than equity-financed zombie firms.
3. Persistence of zombie firms impedes efficient reallocation of capital and labour to more productive uses.
Which of the statements given above is/are correct?
📖 View Explanation
Statement 2 ✗ — This is the REVERSE. Equity-financed zombie firms are more likely to recover sustainably. Bank-financed zombie firms remain in distress longer and relapse even after partial recovery — making bank financing a problem, not an advantage, for zombies.
Statement 3 ✓ — Zombie firms impede the efficient reallocation of resources — capital and labour that could otherwise be deployed in more productive uses remain tied up.
Answer: (c) — 1 and 3 only
Which of the following best describes India's 'structural transformation challenge' as discussed in the context of achieving Viksit Bharat 2047?
📖 View Explanation
Answer: (c)
"India must shift from growth-driven to productivity-driven development to realise Viksit Bharat 2047." Elaborate with reference to structural challenges and reform priorities. (GS-3, 150 words)
📝 Answer Framework
Why Growth Alone Is Insufficient:
• Labour misallocation — large agricultural workforce; low productivity
• Zombie firms — drain capital; impede creative destruction
• Small firm structure — unlike East Asia's medium & large export-driving firms
• Services growth without manufacturing depth = fragile foundation
Reform Priorities for Productivity:
• Strengthen IBC — enable efficient exit of zombie firms
• Labour law reforms — ease constraints; formalization
• GVC integration — trade facilitation + infrastructure
• Credit allocation — towards high-productivity enterprises
• R&D investment — innovation-driven business dynamism
Conclusion: Enhanced productivity + exit of inefficient firms = sustainable leap to Viksit Bharat. Growth has laid foundation; productivity will determine the outcome.