India’s economic landscape is witnessing a strange combination of rapid job growth and increasing lack of productivity growth. And between 2013 and 2018, the country notched an enviable productivity growth rate of 1.3. This performance was equal to Vietnam and ahead of Indonesia, Malaysia, the Philippines, and Thailand. Yet this positive trend has wavered since 2019, causing alarm over the future viability of economic advancement.
Over the five-year period ending in 2018, India enjoyed a stunning productivity growth miracle. This upturn was fueled mostly through a remarkable uptick in intra-sectoral productivity, which accounted for 74% of the total growth. This increase was the result of increases in the quality of labor, technological progress and better organization of production. Even with these advances, the rate of employment growth over this period was only an average of 0.4% per year.
This represents an impressive annual job creation rate of 5.6%, a sign of significant recent acceleration in the growth of employment opportunities. This strong expansion has, unfortunately, been focused almost entirely in the most low-productivity sector—undoing a significant amount of what’s needed for long-term economic prosperity. India is moving quickly to produce those jobs. Whether these jobs are any good, and have a positive net effect on our productivity, remains a topic of keen debate.
Moreover, since 2019, India’s productivity levels have plummeted. At the same time, intra-sectoral productivity has stagnated or even decreased as labor moves from more productive sectors to less productive ones. This transition might signal deeper structural problems in the economy that must first be resolved in order to support continued growth. This malaise of labor right across high-and low-productivity sectors should prompt questions about wider distributional effects of labor use.
In comparison, as positive as India’s productivity growth may have been compared to some of our peers in Southeast Asia, it is still significantly behind our neighbor China. This persistent stagnation casts a long shadow on future prospects for India. Without bold policy action and focused investment into high-productivity sectors, India risks losing the advantage of its demographic dividend.
The future path of India’s economy will depend on how well it can increase productivity everywhere—not just in manufacturing. Specialists insist that this requires focused efforts that promote new skill creation, support tech innovation, and enhance production efficiencies. By focusing on these areas, India may be able to stop the regression in intra-sectoral productivity. This transition would not only accelerate productivity job growth into higher-value industries.