PUBLIC discourse around stalled industrialisation in India, particularly the stagnant share of manufacturing in GDP for the past couple of decades, has hovered around almost a single point agenda -- labour market flexibility. Surprisingly, the studies undertaken by the associations of industrialists and corporates didn’t identify labour issues as the key stumbling block of industrial development. Availability of land, power, lack of appropriate infrastructure, logistics and institutional efficiency according to the employers’ group are more important hindrances compared to labour issues as stated in these reports. It is important that the policy makers and particularly academics aspiring to be close to the policy makers, the organic intellectuals of the ruling class, took it almost as an ideological mission to blame the workers and the assumed rigidity of the labour market as the principal cause of industrial stagnation.

Firstly, labour laws are applicable to a small minority of the working people, and the largest portion of the workers are left to the whims and fancies of their employers free to be exploited at the highest order. Secondly, the productivity of workers in India has grown and since the employers could grab a larger share of the gains, the share of workers in value added show a sharp decline over the years. In fact, there is not much to complain that the employers are not getting adequate freedom to exploit the workers in India, neither is it true that workers’ contribution to the economy and production has declined over the years. The real question, which these policy makers and their coveted intellectuals tend to hide, is the consistent lack of commitment of India’s corporates in building cumulative productive capacities. Profits of corporates have grown significantly in the past decades, real wages of workers remained stagnant but interestingly investment in physical capacities show a declining growth for the past decades. More importantly, Indian corporates still contribute a very low share of their value added in research and development.

RESEARCH AND DEVELOPMENT INDICATORS

Recently the department of Science and Technology, GOI has published a report on research and development covering 8,000 R&D performing institutions of the country during the period December 2024-December 2025. The DST report estimates expenditure on R&D incurred by government and private entities and other institutions in different sectors. It is reported that India’s expenditure on R&D has increased with respect to GDP, reaching 0.84 per cent of GDP. In comparison to Brazil (1.19 per cent) and China (2.58 per cent) India lags far behind. Most important is the fact that government’s share in total R&D expenditure in India is 48.2 per cent, private share accounts for less than that at 45.2 per cent and the remaining 6.6 per cent is shared by other categories of institutions. For the past four decades, Indian policy makers and their intellectual cheer leaders advocated that ensuring free movement of capital would attract investment in India’s industry and innovation will take off signifying celebration of entrepreneurship. Unfortunately, this has been proved to be wrong. After four decades of reforms, India’s entrepreneurs could not be stimulated enough to invest in technology and innovation. They basically grew in the recent past by grabbing public assets and infrastructure at throw away prices and accumulated rent out of these public assets turned into private properties. They hardly took the pain of attaining capabilities to producing competitively in the world market and instead opened the domestic market for foreign producers.

Major industrial investments in R&D are being recorded in sectors such as transport, drugs and pharmaceuticals, biotechnology, information technology, electricals and electronics. It is obvious that only large enterprises can make investments in research and development. MNCs, Indian and foreign and public sector MNCs together, account for 71.3 per cent of total business R&D investment. The World Intellectual Property Organisation also publishes a Global Innovation Index which gives a comparative analysis of 139 countries based on various parameters. According to this index, Switzerland, Sweden, USA and South Korea are the top four countries. China has recently entered the top 10 with rank 10 in 2025 and India ranks 38. The innovation index is a composite index of 18 group indicators. In terms of indicators of knowledge and technology outputs, India ranks 38 in terms of knowledge creation, 39 in terms of labour productivity growth, 31 in high-tech manufacturing share and 44 by software spending as a percentage of GDP. In terms of knowledge-intensive employment, India’s rank is 95 out of 139 countries. Compared to China in these parameters we see that India is lagging. In terms of knowledge creation China’s rank is 1 and in terms of labour productivity growth China stands second in the world. In terms of share of high-tech manufacturing China’s rank is 11 and by software spending to GDP it is 33.

TRUTH AND THE BLAME GAME

The per capita income of India was higher than that of China in 1970 and currently China’s per capita income is more than five times that of India. Most importantly, the private sector plays a significant role in investing in R&D in China which is about 77.6 percent. In the case of India, the capitalist class has taken the easier route of making profit without producing. Instead of achieving competitiveness in a globalised regime, they used liberalisation to give up their share of the domestic market to foreign companies. Import intensity in manufacturing has increased for almost all sectors. The Indian capitalist class chose to be junior partners of global MNCs in exchange for sharing domestic markets through liberalisation. It is surprising that even if their profits grew significantly in the recent past there had not been any significant increase in R&D. Speculative profits are being made through accumulation of financial assets, and more resources are being channelised to financial markets. Control over financial investments and profits has been one of the significant regulations that China adhered to in order to channelise resources to productive sectors. The investment ratio had been kept high, and they could achieve the frontiers in many new technologies.

The productivity figures also reflect significant changes. Labour productivity growth in India is slowing in the recent years. Labour productivity growth does not depend much on the individual efficiency of the worker; it largely depends on the degree of sophistication of the production process the worker is attached with. Capital investment to per capita worker in these two countries show that China’s production structure is more capital intensive and moving towards larger share of high-tech manufacturing. They have moved up the value chain over the years primarily from labour intensive low-value added manufacturing to high value-added sophisticated manufacturing. They could employ their huge labour force and gradually as the labour market tightened wages increased along with purchasing power and the economy could graduate to high value-added production. They could simultaneously educate their workers who would be capable of working with newer technologies. The critical point is these could not be spontaneously achieved through the free functioning of the market. The economy needs to be steered toward a defined goal. In China, it is the state that does this job and can effectively employ the workers and regulate the capitalist to achieve the goals. In India, the private corporates took advantage of government subsidies, low corporate tax, low-cost land, electricity and infrastructure and a largely unregulated labour market but could not direct investment toward attaining cumulative productive capacity. They rather chose to become junior partners of MNCs as well as rentiers who primarily derive speculative returns from asset inflation. They are not keen to build productive capacities and become competitive in the global market but prefer to hide behind the baseless excuse of labour market rigidity and accuse the workers of the decline in industrial growth and technological development in India.