The country needs to raise its labour productivity growth to 7.3 per cent to attain a GDP growth rate of 9 per cent, India Ratings and Research (Ind-Ra) said.
"As the long-term average annual increase of labour force in India is 1.7 per cent, India will have to raise its labour productivity growth to 7.3 per cent to attain the GDP growth of 9 per cent," the rating agency said in a report.
The country's labour productivity grew 4.2 per cent in 2014-15, and to attain the double-digit growth of 10 per cent, labour productivity growth will have to be nearly doubled to 8.3 per cent, it said.
Ind-Ra believed this is possible because such levels of labour productivity growth have been achieved in the past.
India's labour productivity grew at an average annual rate of 5.52 per cent during the decade beginning 2000 against 3.05 per cent during 1990s, it said.
During the high growth phase of FY05-FY08, it grew at 9 per cent. However, the country is now facing a productivity lag with average labour productivity falling to 3.84 per cent during FY11-FY15.
The report also discussed projections of The Conference Board, a global, independent business membership and research association.
It said The Conference Board's projection for India suggests a continuation of the low labour productivity trends even in FY16.
This poses a concern for economic growth, market expansion and profit growth. Longer and sustainable labour productivity growth critically depends on how much businesses invest in innovation, knowledge and intangible capital, and how committed governments are to structural reforms, it said.
Structural changes to factor, product and labour markets are the most critical components of enhancing productivity and competitiveness in the long-term, it said.
The rating agency said sooner the policy issues relating to land acquisition, goods and services tax and labour market reforms are settled, the better it is for economic growth.
The sectors that achieved higher labour productivity
growth during FY00-FY13 were electricity, gas, and water supply (8 per cent), transport, storage and communications (7 per cent), manufacturing (6.4 per cent) and community, social and personal services (6 per cent).
Construction, agriculture and mining recorded labour productivity growth of (-)1 per cent, 2.4 per cent and 4.7 per cent, respectively, it added.
Therefore, agriculture and construction are critical from the point of view of raising labour productivity.
Stagnation and low agricultural productivity has become a major cause of food inflation over the past few years.
Similarly, the construction sector, which has been absorbing large number of workers released from agriculture, is plagued with several issues like slow adoption of new technology and unorganised nature of its operations, it added.
Whichever way one looks at the challenge of skilling India, employment generation and making the available manpower employable productively has emerged as one of the most formidable challenges for the country today, Ind-Ra said.
However, without skilling the workforce, the country will not be able to benefit from labour productivity, a crucial component that drives GDP growth, the report noted.
