Labour productivity growth faltering
Mains Paper 3: Economy
Prelims level: Not much
Mains level: Reasons behind labour productivity faltering
An analysis done by India Ratings and Research of Annual Survey of
Industries data on India’s labour productivity growth in the organised
manufacturing sector shows a disappointing trend.
During the high economic growth phase between 2004 and 2008 (just before
the global financial crisis hit), India’s labour productivity grew by over
14 per cent every year.
But between financial years of 2011 and 2015, this rate fell to just
half of that (7.4 per cent) and continued its deceleration to just 3.7 per
cent between financial years of 2016 and 2018.
What is labour productivity and why does it matter?
The productivity is a measure of the efficiency with which resources,
both human and material, are converted into goods and services.
Besides land and capital, labour productivity plays a crucial role in
deciding the rate of economic growth.
Indeed, India Ratings report points out that globally labour
productivity growth alone accounted for about two-thirds of the gross
domestic product (GDP) growth during FY01-FY10, leaving only one-third to
What is holding back India’s labour productivity?
Labour productivity is crucially dependent on businesses investing in
knowledge and innovation even as the governments bring about structural
reforms that enable such investments to bear fruit.
According to Indian Ratings, “a lot needs to be done quickly both on the
policy front as well as companies’ level because productivity is the most
powerful engine of driving and sustaining manufacturing growth, and making
the sector globally competitive”.
What else does the study reveal?
There are two other crucial results from the analysis. One, that between
financial years 2001 and 2018, the capital intensity — that is, fixed
capital used per worker — in India’s organised manufacturing has been
Two, notwithstanding this rise in capital intensity, the output
intensity — that is, the value of output per fixed capital — has actually
declined over the same period.
In other words, while more and more capital is being used per unit of
labour, it is not yielding commensurate level of output growth.
Q.1) Consider the following statements. 1 . It is a UNESCO designated World Heritage site.
2. It was once a Silk Road hub.
3. It was in news due to its recapturing by state arm terror groups.
4. It had been under Roman rule in ancient history.
The above may refer to? a) Henchir-Bez
Correct Answer: B
Q.1) What is labour productivity and why does it matter? What is holding back
India’s labour productivity?