India approaches 2026–27 with global admiration and domestic unease. On paper, the economy is among the fastest growing large economies in the world, with medium-term growth projections of 6.2–6.7 percent, public investment at historic highs, inflation broadly contained, and external vulnerability lower than in previous cycles. Yet beneath these reassuring aggregates lies a persistent anxiety: for a majority of Indians, economic progress does not feel cumulative, predictable, or dignity-enhancing. This dissonance is not perceptual; it is structural. India has learned how to grow output, but not how to reliably convert growth into rising real incomes, stable employment, productivity diffusion, and social trust. The challenge of 2026–27 is therefore not to chase growth numbers, but to repair the mechanisms through which growth becomes lived prosperity. Without this repair, even 7–8 percent GDP growth risks becoming politically fragile and socially brittle.
The Core Structural Failure: Productivity Growth Without Wage Growth
The most consequential failure in India's economic architecture lies in the broken relationship between productivity and wages. Over the last decade, labour productivity has risen modestly in aggregate terms, yet real wage growth for the bottom 50–60 percent of workers has been stagnant or episodic, particularly outside organised manufacturing and formal services. India's per-worker productivity remains less than one-fifth of the OECD average, and even within India, productivity gains accrue disproportionately to capital and high-skill segments. The reason is not mysterious: chronic labour surplus, deep informality (nearly 85–90 percent of employment), weak collective bargaining, and a policy preference for price subsidies over income policy have collectively severed the wage productivity transmission. Firms rationally suppress wages because labour is abundant and weakly protected; workers rationally under-invest in skills because returns are uncertain; the state compensates through subsidies that ease consumption but permanently weaken labour markets. This equilibrium is politically stable but economically corrosive, and unless it is deliberately dismantled, every other reform from manufacturing to exports to technology will underperform on inclusion.
A National Living Wage: Forcing Productivity, Not Distorting Markets
A region-indexed, inflation-linked national living wage must be understood not as populism, but as economic discipline imposed on a distorted labour market. When wages are too low, firms have no incentive to invest in productivity, scale, or technology; cheap labour becomes a substitute for innovation. International experience from South Korea to Taiwan to parts of Eastern Europe shows that credible wage floors force firms to upgrade or exit, reallocating resources toward more productive enterprises. In India, a calibrated living wage covering formal employment could raise real earnings for the bottom 40 percent by 15–25 percent over three years, expand domestic consumption by 1.2–1.5 percentage points of GDP, and accelerate formalisation by making informality economically inferior rather than merely illegal. The political resistance will be real, especially from labour-intensive sectors, and the failure mode is inflation if productivity does not respond. This is why sequencing is critical: wage discipline must be paired with accelerated access to credit, technology adoption incentives, and labour-law simplification. Properly designed, this reform rebuilds the moral legitimacy of markets by ensuring that growth once again rewards work.
Agriculture: Confronting the Arithmetic India Has Avoided
No economic agenda can be serious without confronting the arithmetic of Indian agriculture. Nearly 45–46 percent of the workforce remains dependent on a sector that generates less than 18 percent of GDP. This is not cultural inertia; it is a structural trap created by land fragmentation, weak non-farm alternatives, and policy choices that preserve subsistence instead of enabling transition. No MSP increase, subsidy, or loan waiver can sustainably raise incomes when too many people depend on too little land. The only durable solution is to reduce the number of people who must depend on farming for survival, while increasing productivity and value addition for those who remain. Legalising and protecting land leasing, shifting MSP from physical procurement to income stabilisation, and building agro-processing, storage, and logistics clusters can together raise agricultural value addition by 30–40 percent, reduce post-harvest losses by ₹1.5–2 lakh crore annually, and enable the voluntary exit of 20–30 million workers into higher-income non-farm employment over five years. The political economy is difficult, but delay guarantees worse outcomes: chaotic migration, urban informality, and rising rural despair.
Employment: Why Indian Firms Do Not Scale and How to Fix It
India's employment problem is not a shortage of enterprises, but a shortage of mid-sized, labour-absorbing firms. Millions of micro-enterprises exist, yet few scale because regulatory thresholds, compliance burdens, litigation risk, and labour rigidity rise sharply with size. Rational entrepreneurs therefore choose to remain small, even when demand exists. Employment-Linked Incentives (ELIs), if properly designed, can correct this distortion but only if they reward net new jobs, are predictable for at least five years, and are simpler than the regulations they offset. A well-designed ELI framework, integrated with skilling and social security portability, can generate 30–45 million formal jobs over five years, raise the formal employment share by 8–12 percentage points, and reduce welfare dependence organically. The failure mode lies in incentive capture by firms that would have hired anyway. This must be mitigated through baseline employment audits, time-bound benefits, and clawback provisions. The strategic objective is clear: shift India's employment centre of gravity from survival entrepreneurship to scalable, wage-paying firms.
Technology as the Fifth Pillar: From Digital Rails to Value Creation
India's digital public infrastructure Aadhaar, UPI, ONDC is a global benchmark, but it must be said plainly: digital rails do not automatically generate high-value jobs or exports. Productivity and wage growth emerge only when technology is domestically owned, industrially embedded, and widely diffused into MSMEs. India's manufacturing productivity remains constrained because advanced machinery, electronics, precision components, and industrial software are largely imported. A mission-driven technology strategy focused on semiconductors, power electronics, industrial AI, medical devices, energy storage and defence-adjacent technologies can add 1–1.5 percentage points to GDP growth annually over a decade, create 12–18 million high-skill jobs, and raise high-tech exports by $150–200 billion by the early 2030s. The state's role is not to subsidise everything, but to act as a first buyer, de-risk scale through procurement, and enforce hard performance milestones. The failure mode is rent-seeking disguised as innovation; the antidote is narrow missions, sunset clauses, and export obligations.
Exports: The Missing Wage Multiplier
Export-oriented economies consistently demonstrate higher productivity, better wages, and faster formalisation. In India, exports account for roughly 22–23 percent of GDP, well below East Asian benchmarks. More critically, India has underperformed in labour-intensive manufacturing exports, apparel, footwear, furniture, while also lagging in high-value industrial exports. Correcting this imbalance could transform labour markets. A focused export push combining logistics reform, standards infrastructure, export credit at global rates, and cluster-based manufacturing can raise export share by 3–4 percentage points of GDP, create 10–15 million jobs, and generate a 15–25 percent wage premium in export-linked employment. The political economy challenge lies in coordinating Centre–State action and resisting protectionist instincts. The failure mode is shallow export growth dependent on incentives rather than competitiveness; compliance-driven export policy mitigates this risk.
Cities: Where Productivity Is Created and Destroyed
India's cities generate the majority of GDP growth, yet they systematically destroy productivity through congestion, housing shortages, weak public transport, and fiscal dependence. Urban inefficiencies cost the economy an estimated 3–4 percent of GDP annually in lost time, fuel, and foregone productivity. The root cause is institutional: urban local bodies lack revenue autonomy, professional capacity, and access to long-term finance. Municipal finance reform property tax rationalisation, user charges, municipal bonds must precede grand infrastructure announcements. When cities can plan and borrow responsibly, investments in transit, rental housing, and services can raise urban productivity by 1–1.3 percent of GDP, while making migration an engine of growth rather than a source of distress. Centralised control produces projects; empowered cities produce outcomes.
Social Investment: From Welfare to Capability
India's rising expenditure on health, education, nutrition and skill development is among the most consequential investments of the last decade. Social sector spending now exceeds ₹25 lakh crore annually, with health expenditure growing at nearly 18 percent CAGR. These investments matter not merely for equity, but for productivity: healthier workers participate more, skilled workers earn more, and educated women raise household incomes and intergenerational mobility. Female labour participation has already risen sharply in recent years, demonstrating latent potential. The failure mode is expenditure without outcomes. The solution is relentless focus on learning outcomes, employability, and preventive healthcare converting spending into capability rather than dependency.
Fiscal Discipline: Inflation Is the Cruellest Tax
Freebies endure politically because their costs are deferred and dispersed. Economically, they are regressive. Inflation erodes real wages faster than it erodes asset values, making it the most punitive tax on the poor. Fiscal discipline is therefore not austerity; it is income protection. Rebalancing expenditure from consumption subsidies to capital investment can raise medium-term growth, stabilise prices, and crowd in private investment. The failure mode is populist panic during downturns; the antidote is rules-based fiscal switching and transparent communication.
Growth as a Social Contract, Not a Statistic
India's 2026–27 economic agenda must be judged not by GDP alone, but by whether effort reliably leads to advancement, whether work confers dignity, and whether institutions behave predictably. Growth is not an abstract number; it is a social contract between the state, the market, and citizens. When productivity raises pay, when technology creates ownership, when exports reward skill, and when institutions deliver fairly, growth becomes self-reinforcing. If India succeeds in repairing its economic transmission system now, the coming decade can convert demographic scale into prosperity. If it does not, even high growth will feel hollow and eventually become politically unsustainable.
[Major General Dr. Dilawar Singh, IAV, is a distinguished strategist having held senior positions in technology, defence, and corporate governance. He serves on global boards and advises on leadership, emerging technologies, and strategic affairs, with a focus on aligning India's interests in the evolving global technological order.]
