The Missing Middle in India’s Growth Story

31 Oct 2026

Tags: Economy   Planning & Growth   Economic growth

Source: The Indian Express

Context: Income classification: The World Bank has moved Jordan, Micronesia, the Philippines, Sri Lanka and Vietnam into the upper-middle-income category in 2026. Vietnam took 16 years to move from lower-middle-income status (2009), while China took 13 years (1997–2010). India has remained lower-middle-income since 2007.

• India’s growth potential: If India’s per capita income grows by 8.5% annually in dollar terms, compared with 5.4% over the previous decade, it could reach the current upper-middle-income threshold in approximately six years. However, sustained growth requires addressing structural weaknesses in employment, manufacturing, private investment and energy infrastructure.

Key Structural Challenges in India’s Growth Model

• Employment without adequate productivity: India’s labour force expanded by over 100 million in less than a decade, while unemployment declined. However, roughly two-thirds of this labour-force increase came from women, most of whom entered self-employment and agriculture. Agriculture still employs 43% of the labour force, while 79% of the non-agricultural workforce is engaged in informal enterprises. Moving workers from low-productivity informal activities to formal, higher-productivity jobs is essential for rising incomes.
• Manufacturing without sufficient job creation: Registered factories doubled from 1.3 lakh in 2004–05 to 2.6 lakh in 2024–25, yet manufacturing’s share in GDP and employment has not increased significantly. Between 2020–21 and 2024–25, formal manufacturing employed fewer additional workers than the gig economy. Increasing capital intensity has also enabled profits to grow faster than wages, weakening workers’ bargaining power and contributing to inequality.
• Public investment without a private investment response: Government spending on highways, airports, freight corridors and ports has improved logistics and competitiveness. However, the expected crowding-in of private investment has remained limited, as companies have prioritised balance-sheet repair, shareholder payouts and selective investments rather than large-scale capacity expansion.
• Renewable energy growth without adequate supporting infrastructure: Rapid solar expansion has sometimes led to the curtailment of generation during periods of surplus daytime electricity and inadequate transmission capacity. Insufficient energy storage and transmission infrastructure threatens reliable, affordable power supply for manufacturing, data centres and artificial intelligence infrastructure.
• Rising wealth without a broad middle class: According to the UBS Global Wealth Report cited in the article, India has approximately 94 lakh dollar millionaires. Rising affluence is accelerating premium consumption and demand for foreign exchange for overseas education, investments and travel. Although wealthy households contribute to tax revenues, the trend also highlights the challenge of generating broad-based prosperity and expanding the middle class.

Why Manufacturing and High-Productivity Employment Matter

• Structural transformation: Economic development requires shifting labour from low-productivity agriculture and informal work towards formal manufacturing and high-value services, where workers can generate greater value and earn higher wages.
• Mass employment: Labour-intensive manufacturing can create jobs at scale, facilitate skill development and provide a pathway for upward mobility, while also strengthening India’s participation in global value chains.
• Equitable distribution of growth: When productivity gains translate into higher wages rather than accruing disproportionately to capital, economic growth can reduce inequality and expand the middle class.

Way Forward

• Generate productive employment: Promote labour-intensive manufacturing, formalisation of enterprises, skill development and greater participation of women in productive, better-paid employment.
• Revive private investment: Improve policy certainty, business conditions and market opportunities so that public infrastructure investment translates into private capacity expansion and employment creation.
• Strengthen industrial infrastructure: Accelerate investment in electricity transmission, energy storage and reliable power supply to support manufacturing, digital infrastructure and emerging technologies.
• Ensure inclusive growth: Link productivity gains with wage growth, broader employment opportunities and wider access to economic assets so that rising national income translates into widespread prosperity.

Conclusion: India’s challenge is not merely to sustain high GDP growth but to ensure productive employment, competitive manufacturing and broad-based income growth. Moving into the upper-middle-income category sustainably requires creating a large and prosperous middle class, rather than expanding wealth only at the top.