Doubling India's Labour Productivity in the Next Decade: Why and How

Rising labour productivity is the foundation of long-term improvements in real incomes, which are crucial for improving living standards and enhanced personal empowerment

- SUMAN BERY & BHASKAR KASHYAP

Faster growth in labour productivity—output per worker or output per hour worked—is central to India's development ambition. While productivity growth ultimately depends on workers and businesses, governments also play an important role through their policies and actions.

Over the next decade, India needs to impart increased urgency to an internally consistent, mutually reinforcing set of measures that better integrates many existing initiatives.

In a well-known quote, the Nobel-prize winning economist Paul Krugman observed, "Productivity isn't everything, but, in the long run, it's almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker." Rising labour productivity is the foundation of long-term improvements in real incomes, which are crucial for improving living standards and enhanced personal empowerment. These are the ultimate goals of Viksit Bharat.

Internal price structures differ across countries depending on their level of development, so output, income and productivity across countries are best measured using a common set of prices. The most recent update is for 2021. This is the familiar yardstick of purchasing power parity or PPP.

The table shows that in 2020, an American worker was nine times more productive than an Indian worker, roughly equal to the gap in real per capita income between the two countries. China succeeded in doubling its real productivity in the decade before 2020. While India's past productivity performance has been respectable, we can, and must, now raise our ambition.

In a speech in July 2017, the late Stanley Fischer, then vice chair of the Board of Governors of the Federal Reserve System (and an inspiration to many generations of policy economists, including ourselves) provided a useful lens through which to understand productivity growth.