INDIA's Technological Progress is not Increasing Real Wages....

India has demonstrated remarkable technological advancement and is a major global player in IT and IT-enabled services, with its digital economy projected to contribute nearly one-fifth of its GDP by 2030. Initiatives like the Unified Payments Interface (UPI) and Aadhaar have transformed service delivery and financial inclusion. Despite this prowess and a high real GDP growth rate (estimated at 8.2% in Q2 of FY 2025-26), these gains have not resulted in a proportional rise in overall economic indicators like productivity across all sectors, lower prices, or significantly higher real wages and incomes for the majority of its population.

Barriers to Translating Tech Progress into Broad Economic Benefits

Uneven Structural Transformation and the Dominance of the Informal Economy: India's economic growth has primarily been driven by the high-productivity services sector, which tends to be skill-intensive. Over half of the workforce remains in low-productivity sectors like agriculture, construction, and informal trade. The large informal sector often operates with older technology and has limited capacity to adopt advanced innovations, thereby hindering aggregate productivity gains and keeping wages low.

Skill Mismatch and Wage Stagnation: Technological advancements have been "skill-biased," increasing demand for high-skilled labor while having a less pronounced impact on the low-skilled workforce. This creates a significant gap between the skills demanded by growing sectors (e.g., AI, IT) and those possessed by the majority of the workforce. The oversupply of skilled labor relative to the demand has also contributed to a stagnation of real wages for many, with data showing a decline in labor's share of Gross Value Added (GVA) in some periods.

Insufficient Investment in R&D and Innovation Ecosystem: India's Gross Domestic Expenditure on R&D (GERD) is only about 0.7% of GDP (2022 data), significantly lower than countries like China (2.4%) and the US (3.6%). This limited investment, coupled with a traditional mindset that prioritizes securing safe jobs over risk-taking innovation, inhibits the development of a robust, homegrown innovation ecosystem.

Limited Manufacturing Growth: Unlike East Asian economies, India's manufacturing sector has not grown sufficiently to absorb the surplus agricultural labor. This sector faces challenges like infrastructure deficits, complex labor laws, and a reliance on low-cost labor rather than automation, leading to low productivity growth and limiting job creation for the masses.

Capital-Biased Growth: Data suggests that the benefits of capital accumulation and technological changes have predominantly favored capital owners over labor, contributing to increased income inequality.

Lack of Industry-Academia Collaboration: Weak linkages between research institutions (like the IITs) and industry hinder the commercialization of innovative ideas, leading many talented graduates to pursue opportunities abroad (brain drain).

While India's technological progress is undeniable, its impact remains concentrated within specific high-skilled, capital-intensive sectors. The broad economic benefits, such as widespread productivity gains, lower prices, and higher real incomes for all, are constrained by deep-seated structural issues. Addressing these challenges requires strategic policy interventions focused on massive skill development, fostering an inclusive innovation ecosystem, boosting the manufacturing sector's capacity to create formal jobs, and increasing R&D investment. By doing so, India can better leverage its technological prowess to ensure more equitable and inclusive economic prosperity. India's significant technological progress, particularly in the digital and services sectors, has not translated into widespread innovation, productivity, lower prices, and higher real wages for the broader population due to structural economic issues, skill mismatches, low R&D investment, and a large informal economy. Economic growth has been services-led, largely bypassing the labor-intensive manufacturing sector where most jobs could be created for the low-skilled workforce.