Raising Labour Productivity Crucial For GDP Growth: India Ratings

Raising Labour Productivity Crucial For GDP Growth: India Ratings
Raising Labour Productivity Crucial For GDP Growth: India Ratings
Aparajita Gupta - 10 January 2020

New Delhi, January 10: India will have to raise its labour productivity growth to 6.3 per cent to achieve eight per cent GDP growth, India Ratings and Research (Ind-Ra) says in its recent report, adding the labour productivity growth in FY19 was 5.2 per cent. Similarly, to attain nine per cent GDP growth, labour productivity growth will have to be raised to a minimum 7.3 per cent.

“Given the growth slowdown, this looks unlikely in the near term but is not an insurmountable task. Such levels of labour productivity growth have been achieved in the past (labour productivity growth FY05-FY08: 8.5 per cent). India’s labour productivity growth, like other nations, came under pressure in the aftermath of the 2008 global financial crisis, especially during FY11-FY15 (5 per cent). However, it recovered thereafter and grew at 5.8 per cent during FY16-FY19,” the report states.

The challenge on the productivity front for India is twofold. First, how to raise the overall labour productivity to a level that delivers the required GDP growth rate, and second how to lift labour productivity in lagging sectors so that growth is more evenly balanced and sustainable over the medium-to long-term.

Sectors such as manufacturing (7.2 per cent), electricity, gas, and water supply (7.7 per cent), transport, storage, and communications (7.4 per cent), and community, social, and personal services (6.2 per cent) contributed significantly to the overall labour productivity during FY00-FY16. The sectors that lagged are construction, agriculture and mining, which recorded labour productivity growth of 0.4 per cent, 3.2 per cent and 4.8 per cent, respectively. On the contrary, China maintained a labour productivity of 6.5 per cent and above across all sectors during FY00-FY16.

In FY90, China’s labour productivity per person employed was lower than India’s. However, in FY19, India’s labour productivity per person employed in purchasing power parity terms at USD 2018 prices was $20,367 as against China’s $34,863. Ind-Ra, therefore, believes a closer monitoring of the sources GDP growth is vital.

The rating agency believes the quantity of labour along with the non-ICT capital will continue to contribute significantly to the GDP growth due to the demographic composition. But, any decline in the contribution of quality of labour and ICT capital is a matter of concern. While the inability of the workforce to upgrade its skill in line with the technological or business or managerial changes in the Indian economy appears to be the reason for the former, a slowdown in capex lately appears to be the cause for the latter.

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