Are We Missing the Development Plot?

India’s developmental journey post-independence has been a story of growth punctuated by gaps, contradictions, and structural inequities. Despite being one of the fastest-growing large economies on paper, with GDP figures hovering around 7%, the reality on the ground paints a far grimmer picture. The unorganized sector, comprising 94% of India’s workforce, finds itself shrinking due to policy missteps, systemic neglect, and economic shocks. How can a nation claim robust growth when the bulk of its population remains in distress, unable to partake in the fruits of development?  

India’s reliance on a top-down development model has been a core issue since independence. Investments were funneled into modern industries, mega-projects, and capital-intensive infrastructure under the hope that growth would “trickle down” to the masses. However, decades later, it is clear that trickle-down economics has failed. The organized sector, which employs only 6% of the workforce, thrives, while the unorganized sector—the backbone of India’s economy—continues to struggle.

Capital-intensive growth has deepened unemployment and widened inequalities. Organized industries, adopting automation, robotics, and now artificial intelligence, are increasing output while shedding jobs. For example, car factories that employed ten workers a decade ago now rely on twenty robots and just five workers. The same trend holds in banking, where work has increased exponentially, but staff numbers have halved. This paradox—job-loss growth—ensures that the educated youth and rural poor alike remain stranded in a cycle of underemployment and disguised unemployment. 

The result? Rising societal distress. While official unemployment figures hover around 4%, underemployment tells the real story. India’s employment definition—working just one hour a week—obscures the harsh reality that millions cannot support their families. Surveys indicate 88% of unemployed youth are educated, highlighting a tragic mismatch between skills and jobs. Instances of PhDs applying for peon jobs or MBAs competing for sanitation roles underscore the frustration among India’s educated youth, exacerbating social unrest, substance abuse, and familial tensions.

Policies like demonetization and GST further battered the unorganized sector, which operates largely on cash and lacks formal accounting systems. While demonetization choked their working capital, GST imposed a complex input credit system that favored organized businesses. Micro-entrepreneurs and small vendors, unable to comply, were pushed out of markets, consolidating demand for large corporations. For instance, industries like pressure cookers, luggage, and leather goods saw organized players thrive at the expense of local manufacturers. In retail, e-commerce growth (20–30%) has undercut neighborhood stores—the second-largest employment sector after agriculture.

Agriculture, employing nearly half of India’s workforce, also remains mired in poverty. Small and marginal farmers—85% of whom own less than five acres—struggle with rising costs, stagnant incomes, and poor market access. While modernized farming increases output, it simultaneously reduces labor demand, leading to mass rural-to-urban migration. Yet, cities, bursting with slums and crumbling infrastructure, cannot absorb this influx, furthering unemployment.

One of India’s biggest blind spots lies in its failure to prioritize education and healthcare. Unlike Southeast Asian nations that focused on human capital early on, India continues to underinvest in these critical sectors. Poor education outcomes and weak healthcare systems leave India’s workforce under-skilled and unproductive, unable to adapt to modern jobs or technological shifts. As AI and automation advance, even skilled professionals face displacement—teachers, doctors, and BPO workers included.

Another critical yet under-discussed issue is India’s black economy. Corruption, leakages, and inefficiencies sap investment productivity. As Rajiv Gandhi famously noted, only 15% of public spending reaches its intended target. Resources that could uplift the poor are squandered on “digging holes and filling holes”—projects with zero net productivity but two incomes earned. This systemic dysfunction hampers education, healthcare, and infrastructure development.

The unorganized sector’s plight distorts official GDP data, which primarily reflects organized sector growth. Since demonetization, field reports suggest the unorganized sector is declining at 5% annually, but this contraction is masked by data that assumes both sectors grow at the same rate. Consequently, India’s real growth rate is closer to 1–2%, far below the celebrated 7%.

For India to realize its full potential, the focus must shift from capital-intensive, urban-centric growth to labor-intensive, inclusive development. Policies should prioritize sectors like agriculture, rural development, micro-enterprises, education, and health. For instance, MSP on full production costs could raise farm incomes, boosting rural demand for local goods. Likewise, cooperatives for micro-entrepreneurs—mirroring farmers’ producer organizations—could help small businesses access finance, technology, and markets.

Reforming GST into a last-point tax is another critical step. Simplifying GST by eliminating input credits would ease compliance for small businesses, allowing them to compete with organized players. Direct tax reforms, including wealth and inheritance taxes, could also generate revenue while reducing indirect taxes, benefiting the poor and curbing inflation.

Ultimately, India’s challenge lies in rebalancing its economy. The organized and unorganized sectors must grow together, not apart. While the former drives technological innovation and capital efficiency, the latter creates jobs, demand, and social stability. The question is: can India correct its developmental trajectory, or will policies continue to favor a privileged few while leaving the majority behind?

India stands at a crossroads. The frustrations of its youth, the plight of its farmers, and the struggles of its micro-entrepreneurs are no longer just economic concerns—they are social and political challenges. Can India address these systemic flaws, create inclusive growth, and ensure the aspirations of its 1.4 billion citizens are realized? Or will we continue to miss the development plot?