[Model Answer QP2022 GS3] “Economic growth in the recent past has been led by an increase in labour productivity”. Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labour productivity.

Labour productivity is an indicator of the efficiency of a country’s workforce, providing a measure of the average output generated per worker (or per hour worked).
In the long run, labour productivity is a key determinant of living standards. Higher productivity enables (though it does not guarantee) increased consumption and/or a reduction in working hours while earning the same or greater pay.

“Economic growth in the recent past has been led by an increase in labour productivity”

  1. The labour productivity growth in India measured in terms of growth in real GDP per person employed for the two time periods show that it was 3.0% during 2000-2005, while it increased at an annual rate of 6. 7% during 2005-2013 period. It may be noted that India’s labour productivity growth during 2005-2013 was also the second highest among the 20 APO Member’s Countries. 
  2. The Labour Productivity growth during 2000-2013 in India has all along been better than the comparative position in respect of benchmark countries such as the United States (except China). This accounts for the progress achieved by the Indian Economy through higher labour productivity post globalisation. 
  3. Prime Minister’s ShramAward Scheme 2013: To give recognition to outstanding contributions the Ministry of Labour & Employment administers a scheme entitled ‘Prime Minister’s Shram Awards’ to workmen (as defined in the Industrial Dispute Act, 1947) employed in Departmental I Public Sector Undertakings of the Central and State Governments and the manufacturing units employing 500 or more workers in the private sector in recognition of their performance, devotion to duty etc. 
  4. Sectors such as manufacturing (7.2%), electricity, gas, and water supply (7.7%), transport, storage, and communications (7.4%), and community, social, and personal services (6.2%) contributed significantly to the overall labour productivity during FY00-FY16.

Growth pattern that will lead to creation of more jobs without compromising labour productivity

  1. Labour Intensive Industries: Special packages are needed for labour-intensive industries to create jobs. The apparel and garments sector received a package from the Government of India roughly a year back. The other labour intensive sectors such as furniture, leather, footwear, food processing have been ignored.
  2. Cluster Development: There are 1,350 modern industry clusters in India and an additional 4,000 traditional product manufacturing clusters, like handloom, handicraft and other traditional single product group clusters. There is a cluster development programme of the Ministry of MSMEs, which is poorly funded and could be better designed as well. The traditional manufacturing clusters must be focussed on a mission mode to increase productivity
  3. Infrastructure development  and Employment: Align urban development with manufacturing clusters to create jobs. For Example: The Ministry of Urban Development (MoUD) has a programme called AMRUT (Atal Mission for Rejuvenation and Urban Transformation) aimed at improving infrastructure for small towns. Infrastructure investment by the government always creates many jobs. But the programme does not take into account whether the infrastructure investment under it is taking place in towns which have clusters of unorganised sector economic activities. Hence an engagement between the Urban Development and MSME Ministries is necessary to ensure that this is happening
  4. Focus of women:  Skilling close to tier 2 and tier 3  cities (rather than standalone vocational training providers), where the women workforce is concentrated, is likely to be more successful in increasing their participation and productivity. 
  5. Health care services, Job creation and labour productivity: Public investment in the health sector has remained even in the last three years at 1.15% of GDP, despite the creation of the national health policy which recommends 2.5% of GDP. Health has a direct bearing on productivity of labour.

In India’s highly segmented labour market, one can still discern at least three demographic groups that are in urgent need of jobs: a growing number of better educated youth; uneducated agricultural workers who wish to leave agricultural distress behind; and young women, who too are better educated than ever before. 

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