For decades, economists, policymakers, and business leaders have repeated one mantra: higher productivity means faster growth. The idea sounds convincing. After all, if workers produce more in less time, the economy should expand, wages should rise, and prosperity should spread. But is productivity really the silver bullet for India’s growth? Or are we missing the larger picture?
Productivity and the Promise of Growth
Productivity, in simple terms, measures how efficiently goods and services are produced. Think of a factory line where one worker once made 10 shoes a day but now produces 20 with the same effort—that’s productivity at work. Globally, nations that have achieved sustained growth—like South Korea or China—did so by boosting productivity alongside massive industrial expansion.
In India’s case, productivity improvements have often been seen as the “missing link” to catch up with developed economies. Economists argue that without productivity gains, even high levels of investment or government spending will not generate long-term growth.
Yet, the ground reality shows a more complex story. Productivity is necessary, but it cannot single-handedly guarantee faster growth.
The Structural Gaps
India still struggles with structural bottlenecks. Agriculture employs nearly half the workforce but contributes only a fraction to GDP. Manufacturing, which could absorb labor from farms, remains sluggish. Services shine on the surface, with IT exports grabbing global headlines, but this sector employs only a small portion of the population.
Economist Arvind Kapur (name changed for narrative) explains, “Productivity growth in IT companies or financial services is important, but it doesn’t move the needle for rural workers who remain stuck in low-paying jobs. Without structural shifts, productivity gains are like water in a leaky bucket.”
Simply put, unless workers transition to more productive industries, aggregate productivity improvements will stay limited.
Technology and the Risk of Jobless Growth
There’s another wrinkle. The digital revolution has made companies leaner, but not necessarily more employment-friendly. Automation, artificial intelligence, and robotics improve efficiency but can reduce demand for human labor. This “jobless growth” phenomenon is a serious concern for a country like India, where one million young people join the workforce every month.
If productivity rises without job creation, inequality can worsen. Urban elites may enjoy higher wages, while rural and informal workers remain trapped. Over time, this imbalance risks creating social tensions.
Why Investment and Demand Matter Too
Productivity cannot operate in a vacuum. For businesses to invest in technology or skill development, they need strong demand. If households do not have the purchasing power to buy more goods, why would companies expand production?
India’s consumption story has been patchy. Urban demand looks strong in certain pockets—think luxury cars, smartphones, or branded clothing—but mass consumption in rural India remains weak. Unless rural incomes rise, demand-led growth will remain limited.
Public investment also plays a role. Infrastructure—roads, power, ports—creates an enabling environment where productivity can actually flourish. Without reliable logistics or steady electricity, even the most productive factory will fall short.
Human Capital: The Missing Piece
Another often-overlooked factor is human capital. Productivity is not just about machines; it’s also about people. Skilled workers adapt faster, innovate more, and help businesses climb the value chain. Unfortunately, India still lags in education and healthcare spending compared to its peers.
A Delhi-based researcher notes, “We celebrate our demographic dividend, but without investment in health and skills, this dividend could turn into a liability.”
Raising productivity requires more than better machines—it requires healthier, better-educated workers who can use those machines effectively.
Global Lessons for India
Looking at global examples offers perspective. South Korea, during its rapid growth phase, didn’t just chase productivity. It combined industrial policy, education reforms, and global trade integration. China’s growth, too, rested on mass employment in manufacturing before moving toward productivity-led gains.
India’s situation is different. With a services-heavy economy, productivity growth often benefits a narrow segment. To make growth inclusive, India needs to balance productivity with job creation and equitable distribution.
The Road Ahead
So, what does this mean for India’s growth story? Productivity remains essential—it helps industries stay competitive, attracts foreign investment, and prevents inflationary pressures. But relying on it alone is risky.
The real challenge is to combine productivity improvements with:
- Job creation through labor-intensive manufacturing.
- Stronger rural demand via higher farm incomes.
- Better infrastructure to support industrial efficiency.
- Investment in health and education to build human capital.
Growth is not just about producing more, but also about ensuring that more people benefit from it. Productivity can light the path, but without demand, jobs, and equity, it cannot carry the nation to its destination.
As one policy expert put it, “Productivity is the engine, but without fuel in the tank—jobs, skills, demand—the car simply won’t move fast enough.”