Thursday, November 12, 2015

India's productivity challenge

Sometime back this op-ed had argued in favor of a development strategy that combined economic growth with productivity for India. The latter assumes great significance for India, given that it lags woefully behind its aspirational peers.

A comparison of the country's capital investment productivity reflects the inefficiencies in utilization of capital. The small and fragmented nature of India's informal sector dominated manufacturing sector would be a major contributor to the very high ICORs.
Much the same can be said about labour productivity, which is orders of multiples below that of its peers. Interestingly, despite the sustained period of economic boom and higher GDP percapita in PPP terms than Indonesia, China has a lower labor productivity. It highlights the important role that capital investment has played in that country's growth.
It is therefore only natural that India enjoys very high catch-up growth potential. But while India's labor productivity growth has been second only to China, it has fallen sharply behind China.
It is not just growth that matters, the quality of growth is as much important. 

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