Foundations for Growth and Competitiveness 2026

India

Over the last two decades, India has been among the world’s fastest-growing large economies. Its robust GDP per capita growth has mostly been driven by total factor productivity and capital accumulation. Labour utilisation contributed to a lesser extent due to persistently low labour force participation rates, particularly among women. At the same time, skill shortages limit firms’ ability to expand, adopt new technologies, and generate employment.

Structural constraints continue to hinder faster growth in India’s labour productivity. Inadequate infrastructure disrupts business operations and limits access to broader markets and technologies. High informality and underrepresentation of women in skilled employment represent a missed opportunity to fully harness the country’s human capital. Trade and investment barriers hold back India’s integration into global value chains.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panels A and D: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Infrastructure: Strengthen infrastructure through public investment and private partnerships

Inadequate and uneven infrastructure quality hinders India’s economic potential. Persistent bottlenecks in electricity, with frequent power outages, continue to disrupt operations. Roads, ports, and railways often suffer from poor maintenance, raising transport costs and delays. In rural and semi-urban areas, limited broadband penetration and poor connectivity further restrict business access to online services and markets.

Recommendations

✓ Maintain robust public investment in infrastructure, especially electricity, transport and telecommunications.

✓ Support private financing, including through better risk-sharing and regulatory clarity in public-private partnerships.

Education: Invest in skills and innovation to boost job quality and retain talent

Skill gaps remain a pressing issue in India. Despite the country’s large and youthful workforce, a significant share of workers lacks the technical and vocational training required to meet the demands of sectors with high growth potential such as advanced manufacturing, financial services, and information technology. The persistent brain drain aggravates the situation, as many highly educated people choose to pursue opportunities abroad.

Recommendations

✓ Expand polytechnic and advanced technical institutes focused on high-value-added manufacturing, advanced services, and IT.

✓ Enhance public and private R&D to provide better-quality jobs and retain skilled workers.

✓ Strengthen partnerships between industry and educational institutions to ensure curricula reflect labour market needs.

Business environment: Streamline regulatory system

Regulatory burdens constrain investment, discourage technology adoption, innovation, and the formalisation of enterprises. While digitalisation has advanced, businesses still face complex procedures to register, obtain licences, and meet tax obligations. The tax system’s complexity and unpredictability particularly deter smaller firms and foreign investors. In the services sector, restrictive licensing, professional accreditation hurdles, and foreign equity caps further hinder market entry.

Recommendations

✓ Streamline and digitalise business registration and licensing through one-stop platforms.

✓ Harmonise taxation across government levels to reduce regulatory fragmentation and enhance the predictability of tax administration, particularly for SMEs.

✓ Accelerate the implementation of the labour codes and the rollout of a unified digital compliance system to reduce compliance burdens.

Trade openness: Enhance global value chain integration via trade facilitation and trade agreements

India’s participation in global value chains remains weak, limiting its ability to benefit fully from evolving global trade dynamics, including access to advanced technologies, knowledge spillovers, and diversified export markets. High tariffs and complex customs procedures continue to act as barriers to international trade, while restrictions on foreign service providers, such as equity caps and nationality requirements, constrain competition and limit India’s access to high-quality international services and expertise.

Recommendations

✓ Reduce import tariffs and simplify customs procedures.

✓ Expand and deepen bilateral and regional trade agreements, with a particular focus on services.

✓ Relax or remove foreign equity caps and nationality requirements when not justified by public interest concerns.

Education: Promote gender equality through targeted support for education, skills, and transition into the workforce

Women remain underrepresented in higher education and skilled employment, limiting their economic empowerment and the country’s growth potential. Structural barriers—such as caregiving responsibilities, safety concerns, and financial constraints to limited access to quality education and training—hinder their full participation. To address the problem a life-cycle approach from school to work is needed.

Recommendations

✓ Expand access to inclusive secondary and tertiary education through targeted scholarships, conditional cash transfers, and subsidised transport for girls from disadvantaged backgrounds.

✓ Scale up vocational and digital skills training for young women, particularly in high-growth sectors like IT, healthcare, and advanced services.

✓ Improve the learning environment, including through support for hostels, separate sanitation facilities, and anti-harassment protocols.

Recent progress on structural reforms

In recent years, India has signed key trade agreements with the UAE (2022), EFTA (2024), and the UK (2025). It has expanded education and skilling schemes with a particular focus on girls and women and enhanced digital and vocational training through the 2023 expansion of the Skill India Mission. Labour regulations were simplified under the Labour Code Consolidation (2020) to reduce regulatory ambiguity. These efforts aim to address productivity barriers, though effective implementation remains crucial.