“Economic growth in the recent past has been led by increase in labour productivity.” Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labour productivity.

The paradoxical relationship between higher GDP growth rate and low employment elasticity (0.1) clearly highlights jobless growth in India; implying higher GDP is due to increase in labour productivity.

The labour productivity is measured as output of Goods and Services per worker. Labour productivity has increased post 1991 reforms due to capital deepening (higher capital per worker), improvement in technology, improvement in quality of labour etc.

Agriculture: The decline in share of workforce from 58% to 45% in last decade has not led to decline in share of agricultural sector to India’s GDP (around 17%).

Structural transformation: Post-1991 reforms, share of manufacturing sector to India’s GDP (17%) and Employment (12%) has remained stagnant. While the share of services sector to India’s GDP has increased to 55%.

Focus on capital intensive industries due to complexity in labour laws and availability of cheaper credit through Government’s incentives.

Increased productivity in Rural India: The contribution of rural areas to manufacturing output has doubled from 25% (1970-71) to 50% (2011-12). However, between 2005-12, the rural India witnessed negative employment growth rate of -2.8%

Strategies needed:

• Promotion of secondary Agriculture to boost non-farm employment.
• Focus on Labour Intensive Industries such as Textile and Leather
• Incentivizing ‘infant’ MSME firms rather than dwarf firms wherein incentives should be limited to initial 5-7 years only. (Eco Survey 2019-20)
• Change in Orientation of SEZs as 3 E’s- Employment and Economic Enclaves to boost employment creation.(Baba Kalyani Committee)
• Integrate “Assemble in India for the world” into Make in India to create 4 crore well-paid jobs by 2025 (Eco Survey 2018-19)
• Effective Implementation of Labour Reforms

The above strategies would enable India to create more jobs and reap demographic dividend. At the same time, they do not adversely affect labour productivity and hence enable India to become $ trillion economy.