Raising labour productivity critical to push GDP growth: Ind-Ra

India will have to raise its labour productivity growth to 6.3 per cent to achieve 8 per cent GDP growth, India Ratings and Research (Ind-Ra) said on Thursday.

The labour productivity growth in FY19 was 5.2 per cent. Similarly, to attain 9 per cent GDP growth, labour productivity growth will have to be raised to 7.3 per cent.

This is 40.4 per cent higher than the level attained in FY19. "Given the growth slowdown, this looks unlikely in the near term but is not an insurmountable task," said Ind-Ra.

Such levels of labour productivity growth have been achieved in the past when labour productivity growth during FY05 to FY08 was 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 to FY15 (5 per cent). However, it recovered thereafter and grew at 5.8 per cent during FY16 to FY19.

The challenge on the productivity front for India is two-fold. First, how to raise the overall labour productivity to a level that delivers the required GDP growth rate.

And secondly, how to lift the labour productivity in the 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 to 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 labour productivity of 6.5 per cent and above across all sectors during FY00 to FY16.

Ind-Ra said productivity-related challenges can have an adverse impact on economic expansion, profit growth and societal welfare in India.

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