Mint Primer: Working longer is not the productivity fix India needs

According to the International Labour Organization, India’s output per hour per worker was $8.47 in 2021 (the latest available data). (Reuters)
According to the International Labour Organization, India’s output per hour per worker was $8.47 in 2021 (the latest available data). (Reuters)

Summary

  • Mint looks at the reasons for India's low productivity growth and what needs to be done to improve it

The growth of India’s labour productivity—output per person per hour—has been tepid. And working longer hours is not a solution. Mint looks at the reasons for the low productivity growth and what needs to be done to improve it.

How has India fared in recent years?

Labour productivity has been growing, but the pace of growth has declined over the last six years. Between 2004 and 2008, it registered a growth of 14%. It fell to a low of 4.23% in 2011 and then grew consistently, touching a high of 9.15% in 2016. Since then, the growth has fallen (see chart), barring a marginal post-pandemic spike in 2021. In 2022, it was just 2.53%. Experts worry that this number should have been higher given that India is witnessing large non-labour intensive (or capital-intensive) investments. Ideally, such investments increase productivity per worker.

How do we compare with other nations?

According to International Labour Organization (ILO), India’s output per hour per worker was $8.47 in 2021 (the latest available data). Developed nations, on the other hand, are way ahead. Output per worker per hour in the US was $70.68. For Germany and the UK, it was $58.31 and $51.35, respectively while for Japan, it was $39.60. China’s productivity per hour was $13.53. Qatar and UAE clocked higher numbers of $52.7 and $42.99, respectively. ILO, however, classifies them among countries that have ‘not so decent’ working environment as they force workers to put in more than 49 hours of work per week.

Graphic: Mint
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Graphic: Mint

What contributes to the low productivity in India?

Primarily, the structure of manufacturing. India is mainly into low-value high-volume production. Investment in innovation and technology, both by the government and private companies, is low and where there is investment, the intensity of its use is poor due to inadequate skilling. And there are issues of management quality and work culture.

Will longer work hours increase productivity?

No. Indians already put in more hours at work. According to ILO data, Indians workers in 2021, on an average, worked 47.7 hours a week compared to Japan’s 36.6, Germany’s 34.3, the US’ 36.4 and China’s 46.1. More than longer work, Indian workers need to be skilled to handle higher technology content and automation. This is critical if we have to move up the manufacturing value chain. Also, there is an urgent need to match education to the needs on the ground, especially when it comes to vocational training.

How can productivity be raised significantly?

According to World Intellectual Property Organization, India filed 55,718 patents applications in 2022. This pales into insignificance against China’s 1.5 million and the US’ 500,000. Our gross R&D spend fell from 0.65% of GDP in 2017-18 to 0.64% in 2020-21. Higher investment in technology and innovation will help India climb the manufacturing value chain. Company managements should experiment, look for best practices and accept failures as they embrace technology and produce high value products.

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