Why India needs higher productivity factor to be an economic powerhouse

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The popular positive buzz is about India soon entering its time under sun. The geopolitical developments energizing the possibility for India to become the manufacturing power house for the next 50 years. We are reminded by an activated media on the emerging market opportunities that are becoming available as the Chinese products are made to recede progressively from our markets and find it harder to sustain by applicable non-tariff barriers, which indirectly increase the customer retention cost without enhancing value.

So, the public discourses tend to focus on these opportunities and hope to convert them to domestic business growth. However we should be aware of the reasons why in the first place India isn’t able to compete in global markets and segments as Chinese companies and products or for that reason other leading trading nations.

In this blog, we will try and understand one important aspect, a part of the many others that define Indian competitiveness in our present times. It is well known that a host of factors holistically combine to create an advantage over other nations. India, for example, has a demographic advantage along with countries like Indonesia, with a strong youthful working population between the ages of 16 to 50. It also has a large pool of world class skilled software professionals making it the leader in the IT services industry. However we still fall short of productivity levels, which affect our competitiveness compared to leading economies of the world.

One of the most obvious differentiator between the rich and poor economies is productivity of labour. A labour in US is nine 9 times more productive than an Indian worker. There was absolute stagnation in labour productivity for two decades, from 1970 t0 1990, in India till the start of reformation by the then congress  led Narishama government. So any increase is productivity was only due to increase in labour employed. So when competitiveness is considered, it actually means that cost of production was increasing per unit value.

The changes that happened, post the liberalization, set off a chain of positive changes on the Indian economy. One of the greatest changes was the huge productivity gains from 2000 onwards, much above other world economies.

The opening up of the communication networks including social networks and the internet for official works is said to have had a stellar role in improving the labour productivity in India. Labour productivity as measured in Gross domestic product per hour of work, being adjusted for differences between countries. Thus a Korean labour is 7 times more productive than an Indian labour. This must give due consideration to the fact that South korea has the highest robotics ratio to population in the world.

The factor largely responsible for labour productivity is the quality standards of its skill training and job training. Germany and South Korea and also china achieves a very high labour productivity by aligning production process and training to suit its labour supply. Its choice of products and markets again favour achieving very high labour productivity. The initial mismanagement of our SKILL INDIA training programs by our VTPs, vocational training Partners aided to a large extend by insensitive official machinery frittered away the huge gains that was envisaged in the formulation of the scheme. Majority of the candidates in ghost lists, were certified without being actually transferred skills, that would enable take up employment nor be productive in the chosen vocation to industry.

As an active participant with a national knowledge partner, it was encouraging for me, to witness some of the changes which have started percolating into industry in the recent past. One of the changes required employment status as a key input for assessment of training centers. We should build stronger linkages between stakeholders and reduce official intervention completely. The non discretionary role of official agency should only be to monitor authorised yearly assessments and ensure automatic applicability of rewards and awards to stakeholders based on clear predetermined performance criteria to be ascertained by beneficiary stakeholders and not by the officials of the government. This alone can ensure the corrective divorce between authority and beneficiary to deliver true value to industry and society and nation as a whole.


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