Intro: India stands at a pivotal economic moment amid the chaotic geo-political shifts. Strong growth numbers hide deeper structural challenges that could shape the country’s long-term prosperity. In this insightful conversation with Mahima Sharma, senior economist Dr. Apica Sharma explains the reforms required ahead to stay on the growth path. In this exclusive interview for Socio-economic Voice at Indiastat, Dr Sharma shares the productivity shifts and policy choices critical for India’s next decade. Read on…
MS: India continues to be one of the fastest-growing major economies, with a GDP growth projection for FY26 of 7.6% despite global slowdown pressures. How should policymakers interpret strong growth numbers in the context of long-term structural transformation needed to avoid the middle-income trap?
Dr. Apica: India’s projected 7.6% GDP growth for FY26 reflects strong macroeconomic momentum despite global slowdown pressures. However, from a development perspective, headline growth must be assessed alongside structural transformation indicators. A key challenge remains the persistent productivity gap between sectors. Agriculture still employs over 40% of the workforce. It is contributing roughly 15% of GDP, suggesting significant underemployment and low productivity.
Historically, countries that successfully escaped the middle-income trap experienced sustained industrial expansion and labour reallocation toward manufacturing and modern services. In India, manufacturing’s share of GDP has remained around 16–17%, indicating limited structural shift. Policy priorities should therefore focus on labor-intensive manufacturing, urbanisation, logistics infrastructure and human capital formation. Growth driven by consumption and services alone may not sustain long-term income convergence. The key objective should be productivity-led growth supported by sectoral reallocation and technological upgrading. All above is again possible by empowering the local level governance. India needs decentralisation of power and manpower.
MS: Recent global development discussions emphasise productivity, innovation and institutional reform as key escape routes from the middle-income trap. In your view, what productivity-enhancing reforms matter most for countries like India transitioning toward high-income status?
Dr. Apica: International evidence suggests that countries escaping the middle-income trap achieve sustained growth through productivity improvements rather than factor accumulation. For India, three reform areas are particularly critical.
Human capital quality remains a binding constraint. While enrolment rates have improved, learning results remain uneven. Strengthening vocational education, STEM training and workforce skills will be essential for productivity gains.
Second, innovation and technology diffusion must accelerate. India’s R&D expenditure remains around 0.7% of GDP, significantly below advanced economies where spending typically exceeds 2–3% of GDP. Policies that encourage private-sector research and strengthen university-industry collaboration can improve innovation results.
Further on, institutional efficiency and regulatory predictability influence firm productivity. Simplifying compliance frameworks, improving contract enforcement and deepening financial markets can enhance capital allocation. Sustained productivity growth ultimately requires technological upgrading, human capital development and efficient institutions.
MS: India experienced unusually low inflation through late 2025, prompting debates on rate cuts and policy stance. When inflation remains benign but growth is strong, how should central banks balance monetary accommodation with financial stability risks?
Dr. Apica: When inflation remains close to the target while growth remains strong, central banks must carefully balance support for economic activity with financial stability considerations. India’s inflation has broadly moderated toward the RBI’s 4% target band, creating some policy flexibility.
However, strong growth conditions suggest that excessive monetary accommodation may not be necessary. Persistently low interest rates can encourage asset price inflation, excessive leverage and credit misallocation. All this particularly in real estate and financial markets.
In such circumstances, central banks often adopt a calibrated policy stance. It is done for maintaining policy credibility while using liquidity management tools to ensure adequate financial system functioning. Macroprudential measures may also complement monetary policy in addressing sector-specific financial risks. Ultimately, the policy objective should remain anchoring inflation expectations. This has to be done while safeguarding financial stability and ensuring that accommodative conditions do not generate longer-term vulnerabilities.
MS: Despite liquidity injections and rate reductions, analysts note uneven credit transmission across sectors. What explains the gap between monetary easing and real investment results in emerging economies?
Dr. Apica: The disconnect between monetary easing and real investment is a common feature in emerging economies. While central banks can influence liquidity conditions and borrowing costs, investment decisions depend primarily on business expectations regarding demand and profitability. Several structural factors weaken transmission.
- Like, banking systems may remain risk-averse due to legacy non-performing assets or balance sheet constraints, limiting credit expansion despite lower policy rates.
- Then, credit allocation may be uneven, with large firms accessing capital markets more easily than small and medium enterprises, which account for a significant share of employment.
- Further on, investment cycles are influenced by policy certainty, infrastructure availability and regulatory conditions, not just interest rates.
Strengthening investment transmission therefore requires financial sector reforms. This alongwith, deeper corporate bond markets, improved credit assessment mechanisms and stable policy frameworks, alongside supportive monetary policy.
MS: Global reports highlight that inequality within countries is becoming more significant than inequality between countries. How should public policy in India evolve to ensure growth translates into broad-based income mobility rather than regional divergence?
Dr. Apica: India’s growth performance has been strong, but ensuring that growth translates into broad-based income mobility remains a central policy challenge. Thus the following measures will help bridge the gap.
Public policy should prioritise human capital investment, particularly in education, healthcare and nutrition. These investments enhance productivity and enable labour mobility into higher-productivity sectors.
Addressing regional disparities is critical. Economic activity remains concentrated in a few high-growth states, while others lag behind in infrastructure and industrial development. Targeted infrastructure investments and regional industrial clusters can help reduce these gaps.
Well-designed social protection mechanisms, including direct benefit transfers and targeted welfare programmes, can mitigate vulnerability during economic transitions. Inclusive development ultimately depends on ensuring that growth generates productive employment, improved human capital and wider access to economic opportunities.
MS: Global trade growth is expected to slow amid rising tariffs and geopolitical uncertainty. How can developing economies like India leverage trade integration while managing increasing global fragmentation? Please share some key strategies in your experience.
Dr. Apica: Global trade growth is slowing amid rising protectionism and geopolitical tensions. In this environment, developing economies must pursue strategic trade integration rather than unconditional openness. A balanced strategy combining trade openness, industrial policy and supply chain resilience will allow India to benefit from trade while managing global fragmentation. I am sharing three key steps:
For India, a key opportunity lies in expanding participation in global value chains. And this in particular in electronics, pharmaceuticals, automotive components and renewable energy equipment. Supply chain diversification following recent geopolitical disruptions has created new opportunities for emerging economies.
Also, India should continue strengthening trade partnerships and bilateral agreements with major markets including the EU, Indo-Pacific economies and West Asia.
Finally, improving trade logistics and infrastructure remains essential. India’s logistics costs are estimated at around 13–14% of GDP. This is significantly higher than many advanced economies. Reducing these costs through infrastructure investment and digital trade facilitation can enhance export competitiveness.
MS: India recently revised the base year for the CPI, GDP and IIP, as well as the National Accounts and inflation measurement methodologies, to improve accuracy. How important are statistical reforms in shaping better policy decisions, especially for development economics research?
Dr. Apica: Reliable statistical systems are essential for effective economic policymaking. As economies evolve, it is essential to update statistical methodologies and base years. This is a necessity to accurately reflect changing consumption patterns, production structures and technological developments.
India’s revisions to the base year for CPI, GDP and the IIP, along with updates to national accounts methodology, represent an important step toward improving economic measurement. Accurate data are particularly critical for monetary policy. This is where inflation measurement directly influences interest rate decisions. Similarly, updated GDP and industrial production data help governments design more effective fiscal and industrial policies.
For development economics research, improved data enable more precise analysis of productivity trends, sectoral transformation and inequality dynamics. Ultimately, strong statistical systems enhance policy credibility, transparency and evidence-based decision-making. All these are fundamental for long-term economic development.
MS: Recent data shows private consumption driving India’s growth momentum even as investment moderates. Is consumption-led growth sustainable for long-term development or must economies eventually pivot toward investment and productivity expansion?
Dr. Apica: Private consumption accounts for roughly 60% of India’s GDP. It has been an important driver of growth in recent years. Strong consumption helps sustain domestic demand. This is particularly during periods of global economic uncertainty. However, historical experience suggests that sustained economic transformation typically requires investment-led growth. This is needed particularly in infrastructure, manufacturing capacity and technological capabilities.
Investment expands productive capacity, improves logistics and supports productivity growth plus export competitiveness. Economies that successfully transitioned to high-income status (particularly in East Asia) experienced sustained periods of high investment-to-GDP ratios.
Therefore, while consumption remains an important short-term growth driver, long-term development requires strengthening:
- Private investment
- Public infrastructure spending
- Industrial capacity expansion
A balanced growth model combining robust consumption with rising investment and productivity gains will be essential for sustaining long-term economic growth.
MS: Economic surveys note strong monetary management alongside fiscal support helping macroeconomic stability. What lessons can emerging economies learn about coordination between fiscal policy and monetary policy during uncertain global cycles?
Dr. Apica: Effective coordination between fiscal and monetary policy is critical for maintaining macroeconomic stability, particularly during periods of global uncertainty. Let's understand two things clearly:
Fiscal policy primarily influences aggregate demand, public investment and social protection.
Monetary policy focuses on price stability and financial system stability.
Thus, when coordinated effectively, the two policies can reinforce each other in supporting economic recovery and growth.
India’s recent policy framework illustrates this balance. It has infrastructure-focused fiscal policy alongside a credible inflation-targeting monetary regime implemented by the Reserve Bank of India. However, maintaining central bank independence remains essential to avoid fiscal dominance and ensure policy credibility.
For emerging economies, the key lesson is that fiscal policy should prioritise productive public investment and sustainable debt management. On the other hand, monetary policy needs to maintain a transparent inflation-targeting framework to anchor expectations and ensure macroeconomic stability.
MS: Many middle-income economies are rethinking industrial and innovation policy to sustain convergence. Looking ahead, what combination of industrial policy, human capital investment and institutional reform is most critical for escaping the middle-income trap over the next decade?
Dr. Apica: Escaping the middle-income trap requires a development strategy centred on productivity growth, technological upgrading and institutional strength.
Our industrial policy should support high-value manufacturing sectors, including electronics, semiconductors, green technologies and advanced pharmaceuticals. Integration into global value chains will be crucial for scaling exports. A coordinated strategy combining industrial policy, human capital development and institutional reform will be critical for sustaining convergence toward high-income status over the next decade. I am sharing how:
Next, a sustained investment in human capital is essential. Improving education quality, expanding vocational training and strengthening research institutions will prepare the workforce for technological transformation.
Further on, institutional reforms that improve regulatory efficiency, contract enforcement and governance can enhance investor confidence and improve resource allocation.
Finally, continued investment in infrastructure, digital connectivity and innovation ecosystems will support productivity growth.
About Dr. Apica Sharma
Dr. Apica Sharma is an Indian economist and policy professional working as a Consultant at one of the Government of India’s premier public policy think tanks. Her work focuses on monetary policy, public policy, trade and financial markets. She has contributed to policy analysis on issues such as India’s inflation-targeting framework and macroeconomic policy discussions.
Dr. Sharma previously worked with the Ministry of Finance, Government of India on research related to gold import duties and trade policy. She also completed a year-long internship at the Reserve Bank of India in the Department of Economic and Policy Research in Mumbai.
Her professional experience includes consulting with the US-based firm AAAUM and teaching courses on Financial Markets, FinTech and Data Analytics to MBA students at University of Delhi and IILM University, Gurugram.
She was also a UGC Senior Research Fellow at the Department of Economics at Indira Gandhi National Open University, where she pursued advanced research in economics and public policy. Her work lies at the intersection of economic research, policy advisory and financial market analysis in India.
About the Interviewer
Mahima Sharma is an Independent Senior Journalist based in Delhi NCR with a career spanning TV, Print, and Online Journalism since 2005. She has played key roles at several media houses including roles at CNN-News18, ANI, Voice of India, and Hindustan Times.
Founder & Editor of The Think Pot, she is also a recipient of the REX Karmaveer Chakra (Gold & Silver) by iCONGO in association with the United Nations. Since March 2022, she has served as an Entrepreneurship Education Mentor at Women Will, a Google-backed program in collaboration with SHEROES. Mahima can be reached at media@indiastat.com
Disclaimer : This interview is the personal opinion of the interviewed protagonist and not those of the organisation he/she works for. The facts and opinions appearing in the answers do not reflect the views of Indiastat or that of the interviewer. Indiastat does not hold any responsibility or liability for the same.
