By Harald Finger and Nujin Suphaphiphat
WASHINGTON DC, Jan 30 2026 – India’s productivity growth over the past two decades has been impressive, reflecting rapid expansion in high-value services, gradual efficiency-enhancing reforms, and scale advantages from a large domestic market.

That said, additional gains would support the country’s ambitions of becoming an advanced economy.

Better supporting innovation, including by removing business barriers, can boost the productivity growth rate by nearly 40 percent, as we show in our 2025 Article IV report. That significant productivity dividend would be like adding the output of the state of Karnataka, the fourth-largest state by output, to India’s economy each decade.

India’s productivity performance, measured by output per additional worker, has been uneven. Services have delivered strong productivity gains, benefiting from advances in adoption of digital technology and their integration into global value chains.

Manufacturing, however, has seen only small productivity growth, while agriculture—still employing over 40 percent of the workforce—remains far less productive than other sectors.

In fact, an additional worker in services produces more than four times the output of a worker in agriculture with the same education level, underscoring the large potential gains from shifting activity to other sectors of the economy.

India’s unusually large share of very small firms is one reason manufacturing productivity has fallen behind. Nearly three quarters of factories employ fewer than five paid workers—almost double the US share. Even more striking, the smallest enterprises produce less than 20 percent of the output per worker of large counterparts, compared with nearly 45 percent in the United States.

These challenges reduce India’s aggregate productivity. Many of these enterprises remain small for decades due to complex compliance requirements, rigid labor regulations, and product market rules that discourage growth. Easing these constraints would help businesses expand and, in turn, dramatically lift productivity. India’s welcome announcement to implement its new labor codes may set the stage for further reforms along this route.

Subdued dynamism

Another factor underlying India’s subdued manufacturing productivity is that business dynamism remains low. The frequency of new business creation and when firms close or exit a market is far lower than in economies such as Korea, Chile, or the United States. Subdued dynamism discourages competition and slows the reallocation of resources toward more productive entities.

Further, a sizable share are zombie firms, which don’t generate enough earnings to cover their borrowing costs yet are continuing to absorb capital and labor. Our analysis shows that firm entry and exit have only a small effect on productivity in India, highlighting the need for a more dynamic business environment in which unproductive firms can wind down while those that are newer and more innovative can grow and thrive.

Innovation, meanwhile, has remained constrained. India invests less in research and development than the average for emerging market economies in the Group of Twenty, and few firms engage in it, with limited adoption of foreign technology.

Larger firms tend to innovate more, while smaller ones have more barriers to scaling up and improving. Strengthening innovation could deliver substantial productivity gains, our analysis suggests.

Specifically, lifting India’s innovation metrics, including business sophistication and creative outputs, to the 90th percentile of emerging markets could raise productivity growth by almost 0.6 percentage point, or nearly 40 percent relative to India’s long-term average.

Role of AI

Artificial intelligence could reinforce these gains. Nearly 60 percent of Indian firms already use some form of AI—well above global averages. AI can make businesses more efficient, speed up technology diffusion, and strengthen innovation. But adoption remains uneven: employers cite skill shortages, inadequate tools, and integration challenges.

Ensuring that AI enhances productivity without widening disparities requires further investment in India’s already strong digital infrastructure, training workers, and protecting those who may lose jobs.

IMF staff simulations show that AI-driven productivity gains—scaled by AI preparedness and exposure—could raise total factor productivity in emerging Asia (including India) by roughly 0.3 to 3 percentage points over a decade—depending on sectors and scenarios.

India has already laid important foundations for productivity-enhancing reforms and can build on a world-class digital public infrastructure. Unlocking the next wave of growth requires a coordinated agenda: easing regulatory burdens so firms can grow, boosting innovation and university-industry collaboration to promote innovation, strengthening business dynamism, and enabling labor to move to higher-productivity sectors.

With these reforms, India can convert its structural strengths into sustained productivity gains, supporting its endeavors to become an advanced economy.

Harald Finger is the IMF mission chief for India. Nujin Suphaphiphat is a senior economist in the Asia and Pacific Department.

IPS UN Bureau

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By Thalif Deen
UNITED NATIONS, Jan 30 2026 – UN Secretary-General Antonio Guterres was dead on target when he told the Security Council last week that the rule of law worldwide is being replaced by the law of the jungle.

“We see flagrant violations of international law and brazen disregard for the UN Charter. From Gaza to Ukraine, and around the world, the rule of law is being treated as an à la carte menu,” he pointed out, as mass killings continue.

“The New York Times on January 28 quoted a recent study pointing out the four-year war between Russia and Ukraine has resulted in over “two million killed, wounded or missing”. The study published last week by the Center for Strategic and International Studies in Washington says nearly 1.2 million Russian troops and close to 600,000 Ukrainian troops have been killed, wounded or are missing.

In the war in Gaza, over 70,000 Palestinians, mostly civilians, including women and children, have been killed since October 7, 2023, with figures reaching over 73,600 by early January 2026, according to various reports from the Gaza Health Ministry and human rights organizations.

These killings have also triggered charges of war crimes, genocide and violations of the UN charter, as in the US invasion of Venezuela and the takeover threats against Greenland.

Guterres said in an era crowded with initiatives, the Security Council stands alone in its Charter-mandated authority to act on behalf of all 193 Member States on questions of peace and security. The Security Council alone adopts decisions binding on all.

No other body or ad hoc coalition can legally require all Member States to comply with decisions on peace and security. Only the Security Council can authorize the use of force under international law, as set out in the Charter. Its responsibility is singular. Its obligation is universal, declared Guterres.

Dr Ramzy Baroud, Editor of Palestine Chronicle and former Managing Editor of the London-based Middle East Eye, told IPS the statement by the Secretary-General is long overdue.

Too often, he said, UN officials resort to cautious, euphemistic language when describing egregious violations of international law—especially when those responsible are UN Security Council veto holders, states that have ostensibly sworn to uphold the UN Charter and the core mission of the international system.

Unfortunately, the UN itself has become a reflection of a rapidly shifting world order—one in which those with overwhelming military power sit at the top of the hierarchy, abusing their dominance while steadily hollowing out the very institutions meant to restrain them, he pointed out.

“We must be honest with ourselves and acknowledge that this crisis did not begin with the increasingly authoritarian misuse of law by the Trump administration, nor is it limited to Israel’s absolute disregard for the international community during its two-year-long genocide in Gaza.”

The problem is structural. It is rooted in the way Western powers have long identified—and exploited—loopholes within the international legal system, selectively weaponizing international law to discipline adversaries while shielding allies and advancing their own strategic agendas, he declared.

Responding to a question at the annual press briefing on January 29, Guterres told reporters it is obvious that members of the Security Council are themselves violators of international law –and it doesn’t make life easy for the UN in its efforts.

Unfortunately, he said, there is one thing that we miss. “It’s leverage. It’s the power that others eventually have, to force countries and to force leaders to abide by international law. But not having the power, we have the determination, and we’ll do everything possible with our persuasion, with our good offices, and building alliances to try to create conditions for some of these horrible tragedies we are witnessing. And from Ukraine to Sudan, not to mention what has happened in Gaza, we will be doing everything we can for these tragedies to stop”.

Dr Jim Jennings, President of Conscience International, told IPS the global humanitarian situation described by the Secretary-General is grim but very real. The climate crisis, natural disasters, numerous ongoing and expanding conflicts, and the impact of new technologies, all add to today’s global economic instability and affect every person on earth.

While President Trump continues bombing countries and strutting the world stage with his adolescent dream of US territorial expansion, a major readjustment of the global power balance among China, the US, Europe, and the BRICS nations is underway, he noted.

Stripping life-giving aid away from the poorest countries on earth to benefit those already rich, as his policies guarantee, is a recipe for even more global suffering and violence.

“Clearly one of the most blatant and harmful reasons for the present disastrous situation worldwide is the reduction of funding for UN agencies by the United States, which has traditionally paid a high percentage of their costs”.

With the further curtailment of The Department of State-USAID’s enormous support for people in critical need in almost every country in the world, the Trump administration’s one-two punch has already threatened to make a challenging set of problems unmanageable.

What is to be done? People and governments everywhere must stand up, speak out, and act against the colossal forces now arrayed against some of the world’s most vulnerable populations. How to do that has never been easy, Dr Jennings argued.

Put in the simplest terms, Secretary-General Guterres was merely pointing out the glaring fact of the true global situation and appealing for the critical need UN agencies have for support if their mission is not to fail. The answer is straightforward— more private funding.

Why not raise the level of our individual, corporate, and foundation donations to the UN Agencies and other aid organizations while continuing to advocate for responsible government backing for the irreplaceable United Nations agencies? he asked.

Dr Palitha Kohona, a former Chief of the UN Treaty Section, told IPS international relations, for a very long time, were dependent on the whims of powerful states and empires. Might was right and disputes were settled by using force. Land inhabited for centuries was annexed to empires and native populations were dispossessed or even exterminated.

From such fractured beginnings, an orderly world governed by agreed rules began to emerge gradually, although most of the rules were established by the powerful.

Thousands of treaties were concluded, customary rules were respected and a rudimentary judicial structure began to be established. The world rejoiced in the establishment of the United Nations.

Though lacking in proper enforcement mechanisms and largely dependent on voluntary mutually beneficial compliance, a rule based international order was beginning to emerge.

“Many, including the present writer, wrote enthusiastically about the consolidation of a rules-based international order. The violence that was commonplace in international dispute resolution prior to the Second World War appeared to be limited to distant parts of the world.”

But like a cozy dream being shattered in mid-sleep, he said, the USA has rudely disrupted the illusion of a new international rules-based world order of which it was once a champion. The trade rules, so painfully developed, have been ditched. Mutual deal making has resurfaced, he said.

“Now it would seem that the powerful would determine the rules, based on self-interest. Rules relating to sovereignty, territorial integrity and rights of people would now seem to depend on the whims of the powerful. The weak will draw their own conclusions. Acquire counterattack capabilities that would make an aggressor think twice”.

“Unless the medium powers and powerless band together and resolve to maintain the international rule of law, we may be entering an era of extreme uncertainty in international relations”, declared Dr Kohona, a former Permanent Representative of Sri Lanka to the UN and Ambassador to China.

Dr Baroud also pointed out that the 2003 US-British invasion of Iraq stands as a textbook example, but the same pattern has repeated itself in Libya, Syria, and across large parts of the Middle East and beyond. In each case, international law was either manipulated, ignored, or retroactively justified to accommodate power rather than principle.

Israel’s genocide in Gaza, the war in Ukraine, and the ongoing atrocities in Sudan and elsewhere are not aberrations. They represent the culmination of decades of legal erosion, selective enforcement, and the systematic degradation of the international legal order.

While I agree—and even sympathize—with Canadian Prime Minister Mark Carney’s comments at the World Economic Forum in Davos, in which he expressed criticism of the new power dynamics that have rendered the international political system increasingly defunct, one cannot help but ask why neither he nor other Western leaders are willing to confront their own governments’ historical role in creating this reality.

Without such reckoning, calls to defend international law risk sounding less like principled commitments and more like selective outrage in a system long stripped of credibility.

European powers that are critical of Trump have not raised their voice with the same intensity and vigor against Netanyahu for doing a lot worse than anything that Trump has done or threatened to do.

This also begets the same question about the latest comments by the UN Secretary-General. He should offer more specifics than generalized decrying the collapse of international morality.

“Moreover, we expect a roadmap that will guide us in the process of re-establishing some kind of a sane global system in the face of the growing authoritarianism, dictatorship, and criminality all around”, declared Dr Baroud.

IPS UN Bureau Report

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