Enhancing labour productivity

As India approaches its centenary of independence in 2047, the vision of what India@100 might look like is a topic of great anticipation.

- Rajiv Bajaj Pankaj Bansal

"Productivity is not everything but in the long run, it is almost everything" —Paul Krugman, economist & author, Age of Diminished Expectations

Will we rise as a global superpower, fulfilling our potential, or remain in pursuit of the developed economies?

While there are multiple levers driving our nation's progress, one often remains overlooked despite its monumental impact: Labour productivity (LP). While job creation frequently dominates discussions about growth, it is productivity—the efficiency with which these jobs contribute to economic output—that defines the long-term prosperity of a nation.

LP is the economic output (gross domestic product, or GDP) per hour worked and its growth means getting more from the work our workforce does.

Why LP matters

Considering the impact this lever has on prosperity; it is said to be the most consequential determinant of long-run economic growth. Rough estimates suggest that a 1% increase in LP yields an equivalent increase in GDP per capita, which thereon contributes to higher income and spending capacity.

A strong focus on productivity levels is especially needed now as the world faces the many challenges of a new geo-economic era.

Productivity growth is the best antidote to the asset price inflation of the past two decades, which has created about $160 trillion in "paper wealth" and even larger amounts of new debt. Without a surge in productivity, we could be headed for a Japan-style wealth reset or a period of sustained inflation.

Second, we need to fund the net-zero transition and keep improving living standards if we are to achieve sustainable inclusive growth. Closing the empowerment gap and the net-zero investment gap requires the equivalent of 8% of global GDP annually, which will be very hard to achieve without rapid productivity growth.