A decade ago, India and China had roughly the same gross domestic product per capita. But at $440, India's current GDP per capita is only about half of China's, and India's GDP is growing at a rate of only 6 percent a year, compared with China's 10 percent. That 6 percent is no mean feat, but could India grow faster?

Over the past 16 months, the McKinsey Global Institute (MGI) has studied the country's economy to see what is holding it back and which policy changes would accelerate its growth.¹ We studied 13 sectors in detail—two in agriculture, five in manufacturing, and six in services. Together, they account for 26 percent of India's GDP and 24 percent of its employment. (We also drew on similar MGI studies carried out in 12 other countries, including Brazil,² Poland,³ Russia,⁴ and South Korea.⁵)

Our study found three main barriers to faster growth: the multiplicity of regulations governing product markets, distortions in the market for land, and widespread government ownership of businesses (Exhibit 1). We calculate that these three barriers together inhibit GDP growth by more than 4 percent a year. Removing them would free India's economy to...