Fixing India's twin balance sheet problem

More than labour reforms, policy makers need to address the misallocation of land and capital

A key challenge for many developing countries is to promote growth by reducing the misallocation of factors of production — labour, capital, and land. Huge gains in growth can be made by reducing factor misallocation. Growth requires more efficient firms to produce more output and use more factors of production. 

Which factor market is most distorted in India? There is mounting evidence that land misallocation is worse than labour misallocation. Low-productivity firms have better access to land and buildings than high-productivity firms. Indeed, land misallocation appears to be at the root of much of the misallocation of output in the