Explained: Why is India’s labour productivity growth faltering?

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News:Recently,an analysis done by India Ratings and Annual Survey of Industries on India’s labour productivity growth in the organised manufacturing sector has shown a declining trend between 2016 and 2018.

Facts:

About Labour Productivity:

  • Productivity is a measure of the efficiency with which resources of both human and material are converted into goods and services.
  • Labour productivity is an important economic indicator that is closely linked to economic growth, competitiveness and living standards within an economy. 
  • Labour productivity represents the total volume of output(measured in terms of Gross Domestic Product or GDP) produced per unit of labour (measured in terms of the number of employed persons) during a given time reference period. 
  • The indicator allows data users to assess GDP-to-labour input levels and growth rates over time, thus providing general information about the efficiency and quality of human capital in the country.

Key takeaways from the study:

  • The study has found that India’s labour productivity has grown by just 3.7% between 2016 and 2018 compared to the annual growth of 14% between 2004 and 2008.
  • The analysis has also found that between financial years 2001 and 2018, the capital intensity which is fixed capital used per worker in India’s organised manufacturing has been rising.
  • However,with the rise in capital intensity, the output intensity that is,the value of output per fixed capital has actually declined over the same period.
  • In other words,while more and more capital is being used per unit of labour, it is not yielding commensurate level of output growth.