India celebrated becoming the fourth-largest economy. Kalaiyara-san A. says beneath lies a grim reality: we are drifting toward middle-income trap, where cheap labour gains end and productivity stalls. Weak job creation, stagnant wages, low productivity reinforce each other. Youth protests are the symptom.
The standard debate — Left vs Right on government size — misses the point. Both miss how institutions shape resource allocation. India historically privileged abstract education over vocational, subsidised higher education for elites. Same bias created post-reform: upper castes monopolised better occupations, relegating low-productivity work to others. Result: only 3% of workforce has formal vocational education. Of 14,000 ITIs, intake is 25 lakh, utilisation 48%, graduation 63% vs 90%+ in many countries.
Societies set institutions based on interests and norms. Economists ignore norms. India’s social norms say manual, artisanal work is lowly, despite indispensable. So we have chronic shortage of skilled manufacturing workers even as educated youth chase MBA jobs. Chief Economic Adviser V. Anantha Nageswaran recently urged youth to pursue trades like welding, plumbing instead of software or MBA.
It won’t happen unless marriage market changes: some skills carry premium. These valuations shape aspirations, ultimately labour allocation. Data show decline in labour intensity across sectors, to accelerate with AI. India needs to revalorise not just production but valuation. Without changing cultural valuation where production itself is disorganised, India falls into low-income, low-productivity trap.
The way out, as Harvard economist Dani Rodrik proposes, is productivism — focus on productive employment, dissemination of economic opportunity. It calls for government role in diffusing technology and useful knowledge, jobs over finance, production over consumption. A truly inclusive economy, as per author, gives dignity and recognition as productive members. That does not happen by just reskilling. It happens by overhauling institutional framework and changing norms that underpin them — moving beyond state-market binaries. Countries that escaped middle-income trap — South Korea, China — did not just build factories, but built institutions that created and diffused useful knowledge. China’s investments in education and health laid foundation. For India, combining industrial policy with vocational education, restoring dignity to manual work, spreading technology beyond elite enclaves — only then can India value skills, jobs and productive work before it is too late.