2019 – Posted in: Daily News

India’s labour productivity growth

For: Preliminary & Mains

Topics covered:

Analysis of Annual Survey of Industries
Key Findings
What is labour productivity?
Why does labour productivity matter?

News Flash

In an analysis done by India Ratings and Research of Annual Survey of Industries (ASI) highlights a slowdown in labour productivity growth in the organised manufacturing sector in India.

Key Findings

India’s labour productivity between 2016 and 2018 grew marginally just by just 3.7 percent (much below than annual growth of 14 percent between 2004 and 2008)
In the financial year 2017, labour productivity growth fell to 2.6 percent and 2.9 percent in Financial Year 2018.
The average wage growth has been 6.5 percent over FY16-FY18 as compared to 11.7 percent during the financial year 2011-15.
Between the financial years 2001 and 2018, the capital intensity (fixed capital used per worker) in India’s organised manufacturing has been rising.
Despite this, the output intensity (the value of output per fixed capital) has actually declined over the same period.

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Labour Productivity

Labor productivity, also known as workforce productivity, is defined as real economic output per labor hour.
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.

Why does labour productivity matter?

India Rating 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 labour/employment growth.
Also if labor productivity grows, it produces more goods & services for the same amount of relative work. This increase in output makes it possible to consume more of the goods and services for an increasingly reasonable price.

Conclusion

According to India-Rating, longer and sustainable labour productivity growth is dependent on investments in innovation, knowledge, and intangible capital by businesses. It is also dependent on governments’ commitments towards structural reforms.

Source: Indian Express