How Innovation Can Lift India’s Productivity

India is no longer short of ambition. What it is still short of, however, is productivity at a level that matches its scale. Recent IMF analysis has made this point with unusual clarity: population size and headline GDP growth will not, by themselves, carry India into the next phase of development. What will matter far more is how effectively Indian businesses turn labour, capital and technology into real economic value.

That distinction matters. Countries that grow because they are large eventually slow down. Countries that grow because they are productive tend to sustain momentum for decades.

Why Productivity Has Become the Central Question

Productivity is often spoken about in abstract terms, but its consequences are very concrete. Higher productivity means firms can pay better wages without losing competitiveness. It means growth that does not rely endlessly on cheap labour or public spending. It also means resilience when global conditions tighten.

India’s record here is mixed. Output has expanded impressively over the past decade, yet productivity growth has lagged behind peer economies in East Asia and parts of Eastern Europe. In many sectors, particularly manufacturing and logistics, the gap between India’s best-performing firms and the rest remains wide. Too many businesses still rely on outdated processes, fragmented supply chains and limited use of data.

The IMF’s warning is consistent rather than dramatic: as demographic advantages fade and global demand becomes less forgiving, these inefficiencies will start to weigh on growth unless they are addressed decisively.

Why Firm Growth Matters More Than Firm Birth

India produces no shortage of entrepreneurs. What it struggles with is helping small firms become medium-sized, and medium-sized firms become globally competitive.

Larger firms are typically more productive because they can invest in better machinery, professional management and compliance systems that reduce risk rather than add to it. They are also more likely to integrate into global supply chains, where exposure to international standards forces improvements in quality and efficiency.

Small and medium-sized enterprises, despite being the backbone of employment, often remain trapped at low scale. Limited access to formal credit, regulatory complexity and the costs of compliance discourage expansion. The result is an economy with too many firms that survive, but do not grow.

The IMF’s assessment is blunt but persuasive: simplifying compliance, improving regulatory predictability and reducing the friction of formalisation would do more for productivity than most headline incentives.

Innovation: Less About Breakthroughs, More About Execution

Innovation in India is often framed as cutting-edge research or deep technology. In reality, some of the largest productivity gains are far more mundane.

Digital payments, basic automation, inventory management software and data-led decision-making have already transformed parts of retail, logistics and financial services. Yet adoption remains uneven, especially among smaller manufacturers and agricultural value chains.

The opportunity lies in closing this adoption gap. Smarter logistics can reduce waste and transit time. Simple automation can improve consistency and cut downtime on factory floors. Better use of data can help firms price, plan and allocate capital more effectively.

Equally important is the flow of ideas between universities, start-ups and established industry. Where research remains disconnected from commercial application, productivity gains are slow to materialise.

Skills: India’s Most Underused Asset

India’s workforce is young, but youth alone does not translate into productivity. Many firms report persistent shortages of workers trained in modern manufacturing techniques, digital tools and analytical roles.

The IMF’s emphasis on vocational education and continuous upskilling reflects a hard truth: classroom education, without strong links to industry, does not prepare workers for today’s workplaces. Firms that invest in training consistently report higher output, lower attrition and better long-term performance.

There is also a significant, and still underexploited, opportunity in raising female participation in the labour force. Greater inclusion would not only expand the workforce, but also improve overall productivity through diversity of skills and perspectives.

Infrastructure as a Productivity Multiplier

No productivity agenda succeeds without reliable infrastructure. Power quality, transport connectivity and digital access directly shape how efficiently businesses operate.

India’s progress in digital public infrastructure has already reduced transaction costs and improved transparency. The next step is deeper integration: encouraging firms to embed these systems into everyday operations rather than treating them as compliance tools.

Continued investment in transport and logistics will matter just as much. Reducing delays, losses and uncertainty across supply chains can deliver productivity gains that no single firm could achieve on its own.

Competing Globally, Improving Locally

As global supply chains adjust, India has a genuine chance to position itself as a dependable manufacturing and services hub. That opportunity, however, comes with conditions.

Global markets reward reliability, speed and consistency as much as low cost. Open trade regimes, simpler export procedures and stable policy frameworks help firms integrate internationally. Exposure to global competition also exerts pressure to improve processes and innovate continuously.

This is not about chasing exports at any cost. It is about using global engagement as a discipline that raises domestic standards.

Moving Into the Next League

India’s productivity challenge will not be solved by a single reform or sectoral push. It requires alignment between policy, business leadership, workforce development and infrastructure investment.

The IMF’s message is consistent across its recent work: long-term growth will come from creating an environment where firms are confident enough to invest, scale and innovate. If India succeeds, it will not only grow larger, but grow better.

The opportunity is within reach. What will determine the outcome is not intent, but execution.