India’s recent economic performance has been strong enough to inspire confidence. Over the past decade, and particularly in the post-COVID-19 pandemic period, India has combined relatively high growth with macroeconomic stability in a way that few large economies have managed. Real GDP growth has remained robust, reaching 6.5% in FY2024-25, making India one of the fastest-growing major economies globally. This performance has been underpinned by strong domestic demand, subdued inflation, gradual fiscal consolidation, and a broadly stable financial sector.

While India’s productivity growth has been meaningful over recent decades, sustaining high growth will require acceleration, particularly as India aspires to become Viksit Bharat by 2047. That transition will require not just maintaining macroeconomic stability but also activating all engines of growth, labour, capital, and improved productivity, through deeper structural reforms.

Manufacturing without depth

There is now growing recognition, reflected in the Economic Survey 2025-26, that manufacturing must anchor this next phase. The challenge, however, is not just expanding manufacturing, but also making it more productive. India’s structural transformation has been skewed. While services have driven growth, manufacturing has not expanded sufficiently to absorb labour or generate broad-based productivity gains. In most successful development experiences, manufacturing acts as the bridge between low-productivity agriculture and high-productivity modern sectors.

The Economic Survey reinforces this point, emphasising that manufacturing is central to sustaining growth and generating employment at scale. Without it, India risks a growth pattern that is neither sufficiently robust nor structurally stable. While productivity growth in services has been strong, manufacturing productivity has lagged behind both its potential and that of its international peers. A key issue is firm structure. India’s manufacturing sector is characterised by a large number of small, low-productivity firms and relatively few mid-sized firms capable of scaling up. This is in stark contrast to economies that successfully industrialised, particularly in East Asia, which saw the emergence of a strong cohort of medium and large firms that drove exports and productivity growth.

Therefore, the current structure creates a challenge for efficient factor allocation, leading to a significant share of labour remaining in agriculture, where productivity is far lower than in manufacturing and services. Most importantly, despite significant investment — particularly in infrastructure — efficiency gaps remain.

Zombie firms, stalled reallocation

These structural constraints converge into a deeper problem, reflected in a weak business dynamism. In economic theory, productivity growth is often driven by creative destruction, in which new, more efficient firms replace older, less productive ones. In practice, this process remains slow in India. As a result, the persistence of small, low-productivity “zombie” firms impedes the efficient reallocation of resources. Zombie firms that are no longer economically viable but continue to operate nonetheless tie up capital and labour that could otherwise be deployed in more productive uses.

Evidence from recent studies further reinforces this concern. A paper, Zombie Firms in Emerging Markets: Survival and Funding Mechanisms (2025), shows that while zombie firms constitute a relatively small share of firms, they account for a disproportionately large share of total debt and assets. This implies that a significant volume of capital is locked into low-productivity uses, creating systemic inefficiencies. The research also shows that zombification is a gradual process. Financial deterioration begins well before firms are classified as zombies, and once they enter this state, they become increasingly dependent on debt while showing little recovery in core performance indicators. The problem is persistent, not cyclical. Crucially, the nature of financing matters. Bank-financed firms are more likely to become zombies, remain in distress for longer periods, and relapse even after partial recovery. In contrast, equity-financed firms are less prone to zombification and more likely to recover sustainably.

These findings point to a deeper institutional issue. Financial and regulatory structures often sustain inefficient firms rather than facilitating exit. This weakens reallocation by crowding out credit from more productive firms, thereby undermining overall productivity growth.

Two-pronged strategy

India’s path to Viksit Bharat requires a manufacturing-led strategy that addresses both scale and efficiency. India has demonstrated that it can grow rapidly. The next phase is about ensuring that this growth translates into sustained increases in productivity and income. There is growing recognition that manufacturing is the weak link in India’s development story and that expanding manufacturing will require deeper integration into global value chains, managing trade barriers, and continued infrastructure investment. Equally important is improving productivity through stronger business dynamism and productive research and development. This means enabling firms to grow, but also allowing inefficient firms to exit. Reforms must therefore focus on simplifying regulations, easing labour constraints, strengthening insolvency processes, improving credit allocation, and expanding access to financing.

The vision of Viksit Bharat ultimately depends on whether India can complete this transition. Growth has laid the foundation, but enhanced productivity and the exit of inefficient firms will determine whether it can sustain the leap to Viksit Bharat.

Saumitra Bhaduri is Professor at the Madras School of Economics

Published – May 16, 2026 12:08 am IST

As is widely understood, the annual Budget is a political document responding to short to medium-term economic challenges. Formally, it is an annual revenue and expenditure statement outlining the government’s priorities. As with any financial statement, the fine print matters the most, not obvious from the media headlines. Yet, it is useful to read the Budget closely to glean the broad direction of economic policy, especially as there are no other long-term policy documents or explicit economic targets in the public domain to locate the annual Budget.

Setting to the Budget

The proximate context of the Budget is the recent eruption of geopolitical turmoil triggered during the second term of the Donald Trump presidency in the United States. Many political and economic arrangements — or, the rules and norms of international relations that have been in place since the fall of the Berlin Wall — are now upended. India’s long-term economic and security arrangements with Russia are under threat. Mr. Trump’s steep tariffs on India’s labour-intensive goods have dashed hopes of a closer economic relationship with the U.S. In response, India is seeking closer ties with the European Union in the form of “mother of all” free trade agreement (FTA), though its details are still unclear. India’s import dependence on China continues despite the policy efforts taken, since 2020, to correct this. Diplomatic relations remain strained. For instance, China has imposed restrictions on the exports of critical minerals, tunnel boring machines and the services of skilled workers for the electric vehicle (EV) industry.

Editorial | Credible and creditable: On Union Budget 2026-27

Budget 2026-27 needs to be read in this context. Unlike previously, this Budget highlights the urgency of strengthening domestic manufacturing. It also aims to streamline import duties and procedures in order to reduce imports and achieve self-reliance, and to speed up exports.

Factually speaking, the Indian manufacturing sector has not performed satisfactorily for a while now, despite headline GDP growth of 6.5% to 7% annually in real terms (net of inflation). India has deindustrialised prematurely; the share of manufacturing in GDP has declined or, at best, has remained constant. Manufacturing employment in total employment has also declined. The official GDP numbers for manufacturing seem overstated due to infirmities in estimation. Alternative figures, based on the more reliable Annual Survey of Industries (ASI), based on time-tested production accounts of factories, show distinctly slower output growth rates. With very modest growth in fixed investment (or gross fixed capital formation), industrial capacity has eroded during the last decade.

Rising import dependence for most capital and intermediate goods is a reason for modest industrial performance. An inverted duty structure wherein intermediate goods face higher tariffs than final goods seems to be responsible for the poor industrial investments. Policy initiatives such as ‘Make in India’ (2014), Aatma Nirbhar Bharat (or Self-Reliant India Movement) in 2020 and Production Linked Incentives (2021) seem to have largely failed to dent India’s rising import dependence in manufactured goods despite some widely applauded successes in mobile phone assembly (with high import content, best exemplified by Apple iPhone exports).

Hence, the Budget aims to tackle domestic vulnerabilities.

The tariff modifications seem to correct for the inverted duty structures (IDS) by reducing basic customs duties on capital and intermediate goods in order to encourage domestic value addition. Likewise, rationalising procedures at points of entry of goods would perhaps reduce delays, thus improving ease of production and exports.

Focus on electronics, the China factor

The Budget makes substantial provision for augmenting the production of electronics parts and sub-assemblies, which form the single largest product-group of dependence on China. The same holds for rare earth materials (used in the production of EVs and electronic goods) — a choke point as the Economic Survey recently and rightly highlighted. To tackle it, the Budget proposes to create a dedicated rare earths corridor running through “mineral-rich States of Odisha, Kerala, Andhra Pradesh and Tamil Nadu … to promote mining, processing, research and manufacturing”. Similar to encouraging the production of lithium-ion cells for battery storage, the Budget proposes to extend the tax exemption on capital goods to produce these items.

Policymakers perceive India’s trade integration has to begin with labour-intensive goods. Now, with the Trump tariffs on India’s exports, there is an acute need to enhance the productivity of such goods to overcome these tariffs and ensure diversification away from the U.S. In line with this view, the Budget has laid emphasis on promoting new Micro, Small, and Medium Enterprises (MSME) clusters, modernising the old or “legacy” clusters (about 120 of them), and providing financial assistance to MSMEs to tap the capital market. In principle, these measures are welcome.

However, the Budget seems to fall short in efforts to boost fixed investment. To augment industrial capabilities, India needs to encourage investments in high-tech industries. Such technologies are mostly proprietary items of multinational corporations that often come bundled with foreign direct investment (FDI). In recent years, net FDI, as a ratio of GDP, has become practically zero. The Budget seems to make little effort to correct for the decline in foreign high-tech investments. Geopolitical uncertainties perhaps make it difficult to attract such technology-intensive investments, at least for now.

While the government is committed to promoting exports, the Budget has permitted firms located in special economic zones (SEZs) to sell a part of their output in domestic territory. This seems regressive. The government should tackle their hurdles to augment exports, rather than choose the softer option of allowing sales in the domestic market.

A silence on Centre-State fiscal issues

The Budget, which has been presented in a difficult global context, seems well-intentioned to tackle import dependence in domestic manufacturing to attain greater self-reliance. However, considering the uncertainties, the Budget seems silent on many difficult issues. Centre-State fiscal issues have also been overlooked, considering the impending implementation of the recommendations of the Sixteenth Finance Commission. Whether the proposed measures would yield desired results to reverse India’s industrial decline and import dependence (especially on China, a strategic threat) would depend on the specifics of the proposals (which we have not seen) and how they are implemented.

R. Nagaraj was with the Indira Gandhi Institute of Development Research (IGIDR), Mumbai

Published – February 02, 2026 12:16 am IST

A group of small, freshwater animals protect themselves from infections using antibiotic recipes “stolen” from bacteria, according to a new study. The tiny creatures are called bdelloid rotifers, which means ‘crawling wheel-animals’. They have a head, mouth, gut, muscles and nerves like other animals, though they are smaller than a hair’s breadth.

When these rotifers are exposed to fungal infection, the study found, they switch on hundreds of genes that they acquired from bacteria and other microbes. Some of these genes produce resistance weapons, such as antibiotics and other antimicrobial agents, in the rotifers. The findings were published in the journal Nature Communications.

Prior research found that rotifers have been picking up DNA from their surroundings for millions of years, but the new study is the first to discover them using these genes against diseases. No other animals are known to “steal” genes from microbes on such a large scale.

“These complex genes — some of which aren’t found in any other animals — were acquired from bacteria but have undergone evolution in rotifers,” coauthor David Mark Welch, senior scientist and director of the Josephine Bay Paul Center at the Marine Biological Laboratory says in a release. “This raises the potential that rotifers are producing novel antimicrobials that may be less toxic to animals, including humans, than those we develop from bacteria and fungi.”

“When rotifers were challenged with a fungal pathogen, horizontally acquired genes were over twice as likely to be upregulated as other genes — a stronger enrichment than observed for abiotic stressors,” the authors write. “Among hundreds of upregulated genes, the most markedly overrepresented were clusters resembling bacterial polyketide and nonribosomal peptide synthetases that produce antibiotics. Upregulation of these clusters in a pathogen-resistant rotifer species was nearly ten times stronger than in a susceptible species.”

Most of the antibiotics are produced naturally by fungi and bacteria in the wild, and humans can make artificial versions to use as medicine. The new study suggests that rotifers might be doing something similar. The scientists think that rotifers could give important clues in the hunt for drugs to treat human infections caused by bacteria or fungi.

One problem with developing new drugs is that many antibiotic chemicals made by bacteria and fungi are poisonous or have side-effects in animals. Only a few can be turned into treatments that clear harmful microbes from the human body. If rotifers are already making similar chemicals in their own cells, they could lead the way to drugs that are safer to use in other animals, including people.