Key Details
In the September 2026 article in IMF Finance & Development, Can India Sustain Its Rise?, Subbarao assesses whether India’s post-pandemic growth, macroeconomic stability, public infrastructure expansion and digital transformation can generate a durable, broad-based economic acceleration.
Structural issue | Evidence highlighted in the article |
|---|---|
Private investment | Private corporate investment remains around 11% of GDP, compared with a peak of nearly 17% in 2008. |
Investment composition | India’s overall investment rate is approximately 33% of GDP, but recent momentum has been driven substantially by public capital expenditure. |
Employment structure | Agriculture produces about 15% of GDP while employing nearly half the workforce. |
Manufacturing gap | Manufacturing accounts for approximately 13% of GDP and 11% of employment. |
Modern services | IT, finance and business services generate roughly 15% of GDP but directly employ only around 3% of workers. |
Informality | More than 85% of the workforce remains in informal employment. |
Innovation | India spends approximately 0.7% of GDP on research and development, compared with 3% or more in advanced innovation economies. |
Demographic window | India’s median age is around 28, substantially below China and Europe. |
Public Investment Has Not Yet Triggered a Broad Corporate Cycle
India’s infrastructure drive has expanded roads, railways and logistics capacity, while stronger bank and corporate balance sheets have removed important constraints inherited from the previous decade. Gross non-performing assets have fallen from above 11% to below 3%, and companies have reduced leverage.
Yet private corporate investment remains well below its earlier peak. Investment is concentrated in large business groups and selected sectors—including renewable energy, telecommunications, data centres and electronics assembly—while much of medium-sized manufacturing remains cautious.
Subbarao attributes this hesitation partly to uncertainty over demand and expected returns, and partly to regulatory unpredictability, compliance burdens and perceptions of an uneven operating environment. Public capital expenditure can provide infrastructure and initial demand, but a sustained expansion requires firms to commit capital to new production, technology and supply chains.
India’s Productive Sectors Are Not Absorbing Labour at Scale
The employment structure reveals a sharp productivity divide. Nearly half the workforce remains in agriculture, which generates only about 15% of economic output. Conversely, high-value modern services produce a similar share of GDP with only a small fraction of the workforce.
India has built globally competitive IT and business-service industries, but their skill requirements limit the number of workers they can absorb directly. Electronics and other high-technology manufacturing can strengthen exports and supply-chain integration, yet these activities may also be relatively capital intensive.
The missing bridge is large-scale, labour-absorbing manufacturing and modern services capable of moving workers from low-productivity activities into formal, better-paid employment. Without that transition, headline GDP growth can coexist with limited improvement in economic security for much of the labour force.
Unequal Income Growth Can Weaken the Investment Engine
The article describes a widening divide between a prosperous formal urban economy and workers facing stagnant rural wages, informal employment and limited social protection.
This divide has an economic consequence beyond inequality. When discretionary consumption is concentrated among higher-income households, demand grows fastest for premium products while the mass market remains comparatively weak. That can make firms less confident about investing in production intended for a broad domestic consumer base.
The link runs in both directions: weak mass incomes constrain demand, uncertain demand discourages investment, and subdued investment limits the creation of productive jobs.
Innovation and Human Capital Will Shape the Next Growth Phase
Moving from middle-income to advanced-economy status requires more than capital accumulation, infrastructure and low-cost labour. Productivity increasingly depends on research, intellectual property, workforce skills and the ability to develop — not merely adopt —f rontier technologies.
India’s R&D expenditure of roughly 0.7% of GDP sits well below the levels recorded by leading innovation economies. Subbarao argues that this limits India’s role in producing core intellectual property across semiconductors, artificial intelligence, biotechnology and advanced manufacturing.
India’s young population creates a significant opportunity, but the demographic dividend depends on whether education, health and skills enable young workers to enter productive employment. The central race is therefore between labour-force growth and the economy’s capacity to create suitable jobs.
Policy Relevance
The essay reframes India’s growth challenge as one of structural translation. Macroeconomic stability, public infrastructure and digital systems are enabling foundations; policymakers now need them to produce private investment, formal employment, innovation and widely shared income growth.
Four connections deserve particular attention:
Public capital to private investment: Infrastructure must reduce firms’ operating costs and create sufficient confidence for broader corporate investment.
Manufacturing growth to employment: Industrial policy should be judged partly by the number and quality of jobs created, not only production, investment commitments or exports.
Skills to labour demand: Training capacity needs to reflect the sectors and occupations likely to expand, rather than generating certification without employment pathways.
Technology adoption to domestic capability: India’s use of frontier technology needs to be accompanied by greater research, design and intellectual-property creation.
The policy choice is not between physical infrastructure and human capital. Sustained growth increasingly depends on whether India can combine logistics and industrial capacity with education, health, skills and R&D, within limited fiscal space.
Relevant Question for Policy Stakeholders: What would most effectively convert India’s public infrastructure expansion into a broader cycle of private investment, labour-absorbing production and rising mass-market incomes?
Follow the Full Article Here: Can India Sustain Its Rise? by Duvvuri Subbarao