Why Are (A Lot Of) Indian Factories Still So Small?

RBI's Lost Decade

Dear reader,

It’s something we’ve all, most probably, wondered at some point of time: why does India, despite its talent and reforms, find it extremely strenuous to build—barring a few—large, globally competitive firms like China?

In today's story, Prof. Vidhu Shekhar talks about one of his colleagues who recently returned from China’s industrial clusters and asked: Why can’t Indian factories look like this? The answer, as he goes on to explain in his article, is not a lack of skill, ambition, or reforms. It’s the cost of capital.

For much of the past decade, the RBI has kept interest rates high — even when inflation was low, and fiscal policy was disciplined. This tight monetary stance has quietly-but-deeply shaped India’s economy.

When the world gave businesses arguably easy money, India remained one of the costliest places to borrow. It’s a story of good intent but costly caution.