The Indian manufacturing sector, with few mid-size firms, has the problem of the “missing middle.” The critical constraint is imposed by “predatory institutions” and their corruption that mid-size firms face in their day-to-day interactions with the state. The current policy approach towards improving the ease of doing business by reforming regulatory institutions is not enough in this case. To solve the missing middle problem, lower-level bureaucrats engaged in petty corruption need to be disciplined, and government procedures should be made transparent and accountable to reduce the scope for such corruption.
