TCA Ranganathan The former chairman of the Export Import Bank of India is a banker with a theory of everything  @tcartca
Given the international pyrotechnics and as we are in our budget season, it may be a fitting occasion to take stock of our economic position. Complex systems, such as national economies, are best understood through the familiar glass-half-full or glass-half-empty lens. Seen this way, India’s half-full picture is impressive: we remain among the fastest-growing economies despite tariff tantrums in our largest export market; our stock and IPO markets are vibrant, ranking next only to the New York Stock Exchange in returns; and we have a large, ever-expanding consumer society. Demand for air travel, SUVs, luxury housing, and other high-end goods continues to rise, reflecting growing confidence and aspiration.
Yet the half-empty view is stark. We remain heavily dependent on imported goods and technologies, a vulnerability with serious national security implications in a fractured world. Our metropolises – already overcrowded and polluted – are struggling to cope with migration and unchecked growth. Thirty-nine Indian cities rank among the world’s 50 most polluted. Delhi, Bengaluru, and Mumbai are choking under traffic congestion and toxic air, threatening the future trajectory of our services exports, our primary growth engine, anchored in these very metros.
An imbalance in our growth model is being signalled by our capital markets. In the Nifty 500 today, banks and financial services account for roughly one-third of market capitalisation; IT services add 9%, while industrials languish at barely 6%. Two decades ago, energy and industrials together dominated the market, accounting for nearly half of it. The shift is striking: investors have favoured services, where scalability is easier and regulatory risks are fewer, while shying away from manufacturing and industrials. By contrast, the US equity market, although dominated by technology at nearly 30%, retains about 10% in industrials, while Europe maintains a more balanced mix across industrials, finance, healthcare, and technology. India’s 6% industrial share is dangerously low, reflecting not just investor preference but the mis-signals in our policies.
This weakness is troubling because manufacturing growth has not taken off, despite the government’s serious intent and initiatives, such as PLI, Make in India, and sectoral packages for electronics, defence, and renewables. R&D schemes, innovation hubs, and infrastructure investments have helped only partially – Apple’s limited shift being a rare success. Manufacturing’s GDP share is stuck at 15-16%, far below the 25% target, with exports, jobs, and capital inflows dominated by services.
The core issue is a skewed risk-reward balance: manufacturing faces long gestation, regulatory uncertainty, and weak exit options, while services offer faster, smoother returns. Policy signals have been channelling entrepreneurial energy towards services, finance, real estate, and consumer markets – domains where risks are lower, and rewards are faster, leaving manufacturing, especially tech manufacturing, undersupported. Another structural gap lies in our insolvency law. India’s IBC lacks US-style Chapter 11 protections that allowed distressed firms (such as GM) to reorganise and preserve value. Without such safeguards, capital-intensive industries carry higher risk premiums, discouraging investment.
The forthcoming Union Budget presents a timely opportunity to address the current imbalance and strengthen the role of manufacturing in India’s growth model. A key proposal meriting consideration is the acceleration of the 12 new ‘industrial cities’ announced some time ago under the National Industrial Corridor Development Programme, along with the eight that were then declared to be already underway. Designed to specialise in distinct sectors, these hubs can enable manufacturing at scale and help rebalance the economy away from its service-heavy tilt.
Alongside, measures that directly reduce entrepreneurial risk can be examined. Co-locating technology institutes within industrial corridors and encouraging third-party provision of labour housing or skilling centres aligned with the hubs’ focus would lower project costs and create a stronger ecosystem for new entrepreneurs.
Urban pollution is also signalling design errors. India has over 4,000 statutory towns, 400 cities with populations exceeding 100,000, and 40 cities with populations above 1 million. In most countries, such cities are the bedrock of growth. Yet, in India, fiscal and managerial strength remains concentrated and thus a range of public goods remains scarce outside a privileged circle of capital cities. A more equitable redistribution of human resources across non-metros and a reprogrammed signalling mechanism – eliminating outdated subsidies for metro living, imposing graded vehicle taxes, and congestion levies on firms – could create voluntary decongestion.
The Union Budget is more than an accounting exercise; it is a statement of intent. This year, we could use it to signal confidence in our own capabilities. The world has changed, but India’s greatest threats remain internal: polluted cities, congested metros, skewed capital markets, and policy signals that deter entrepreneurs from tech manufacturing. This budget season, let us resist obsessing over Washington or Beijing. Instead, let us confront our own mis-signalling. By broadening our growth base and strengthening resilience, India can chart a confident path forward in a turbulent world.
(The writer is the former chairman of the Export Import Bank of India is a banker with a theory of everything)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.